House Hearing, 113TH Congress - The Roll Out of Healthcare - Gov: The Limitations of Big Government

THE ROLL OUT OF HEALTHCARE.
GOV: THE
LIMITATIONS OF BIG GOVERNMENT
HEARING
BEFORE THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
DECEMBER 4, 2013
Serial No. 11383

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(
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA,
JOHN L. MICA, Florida
MICHAEL R. TURNER, Ohio
JOHN J. DUNCAN, JR., Tennessee
PATRICK T. MCHENRY, North Carolina
JIM JORDAN, Ohio
JASON CHAFFETZ, Utah
TIM WALBERG, Michigan
JAMES LANKFORD, Oklahoma
JUSTIN AMASH, Michigan
PAUL A. GOSAR, Arizona
PATRICK MEEHAN, Pennsylvania
SCOTT DESJARLAIS, Tennessee
TREY GOWDY, South Carolina
BLAKE FARENTHOLD, Texas
DOC HASTINGS, Washington
CYNTHIA M. LUMMIS, Wyoming
ROB WOODALL, Georgia
THOMAS MASSIE, Kentucky
DOUG COLLINS, Georgia
MARK MEADOWS, North Carolina
KERRY L. BENTIVOLIO, Michigan
RON DESANTIS, Florida
California, Chairman
ELIJAH E. CUMMINGS, Maryland, Ranking
Minority Member
CAROLYN B. MALONEY, New York
ELEANOR HOLMES NORTON, District of
Columbia
JOHN F. TIERNEY, Massachusetts
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
JIM COOPER, Tennessee
GERALD E. CONNOLLY, Virginia
JACKIE SPEIER, California
MATTHEW A. CARTWRIGHT, Pennsylvania
TAMMY DUCKWORTH, Illinois
ROBIN L. KELLY, Illinois
DANNY K. DAVIS, Illinois
PETER WELCH, Vermont
TONY CARDENAS, California
STEVEN A. HORSFORD, Nevada
MICHELLE LUJAN GRISHAM, New Mexico
Vacancy
LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director
STEPHEN CASTOR, General Counsel
LINDA A. GOOD, Chief Clerk
DAVID RAPALLO, Minority Staff Director
(II)
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CONTENTS
Page
Hearing held on December 4, 2013 ........................................................................
WITNESSES
Ms. Veronique De Rugy, Senior Research Fellow, Mercatus Center, George
Mason University
Oral Statement .................................................................................................
Written Statement ............................................................................................
Dr. Clifford Winston, Searle Freedom Trust Senior Fellow, Economic Studies
Program, The Brookings Institution
Oral Statement .................................................................................................
Mr. Mark A. Calabria, Director of Financial Regulation Studies, Cato Institute
Oral Statement .................................................................................................
Dr. Karen Kruse Thomas, Historian and Communications Associate, Johns
Hopkins Bloomberg School of Public Health, External Affairs
Oral Statement .................................................................................................
6
9
14
16
23
25
37
39
APPENDIX
The Hon. Elijah E. Cummings, a Member of Congress from the State of
Maryland, Opening Statement ............................................................................
Chairman Issa submitted and article from Wikipedia on Alexander Fleming ...
Rep Connolly submitted for the record an article from the Washington Monthly called, The Best Care Anywhere ..................................................................
Chairman Issa submitted for the record letters sent to 15 Health Insurance
Companies ............................................................................................................
Chairman Issa sent a letter to Mr. Mark Bertolini, Chairman, President,
and CEO, Aetna, Inc ............................................................................................
Chairman Issa submitted for the record a NewYorker Article GOP
Healthcare.gov Too Fast Now ............................................................................
Rep. Cartwright submitted for the record article titled What About Social
Securitys Rollout? ..............................................................................................
Questions submitted from Rep. Collins to Dr. Calabria, Dr. De Rugy, Dr.
Thomas, and Dr. Winston ....................................................................................
(III)
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THE ROLL OUT OF HEALTHCARE.GOV: THE

LIMITATIONS OF BIG GOVERNMENT
Wednesday, December 4, 2013,
HOUSE OF REPRESENTATIVES,
OVERSIGHT AND GOVERNMENT REFORM,
WASHINGTON, D.C.
The committee met, pursuant to call, at 9:35 a.m., in Room 2154,
Rayburn House Office Building, Hon. Darrell E. Issa [chairman of
the committee] presiding.
Present: Representatives Issa, Mica, Turner, Duncan, Walberg,
Lankford, Amash, Gosar, DesJarlais, Gowdy, Farenthold, Collins,
Meadows, Bentivolio, DeSantis, Cummings, Maloney, Norton,
Tierney, Connolly, Speier, Cartwright, Davis, Cardenas, Lujan
Grisham, and Kelly.
Staff Present: Molly Boyl, Majority Deputy General Counsel and
Parliamentarian; Lawrence J. Brady, Majority Staff Director;
Caitlin Carroll, Majority Deputy Press Secretary; John Cuaderes,
Majority Deputy Staff Director; Brian Daner, Majority Counsel;
Adam P. Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority Chief Clerk; Tyler Grimm,
Senior Professional Staff Member; Frederick Hill, Majority Deputy
Staff Director for Communications and Strategy; Christopher
Hixon, Majority Chief Counsel for Oversight; Mark D. Marin, Majority Deputy Staff Director for Oversight; Laura L. Rush, Majority
Deputy Chief Clerk; Sarah Vance, Majority Assistant Clerk; Jedd
Bellman, Minority Counsel; Krista Boyd, Minority Deputy Director
of Legislation/Counsel; Aryele Bradford, Minority Press Secretary;
Jennifer Hoffman, Minority Communications Director; Julia
Krieger, Minority New Media Press Secretary; Juan McCullum, Minority Clerk; Jason Powell, Minority Senior Counsel; Brian Quinn,
Minority Counsel; Dave Rapallo, Minority Staff Director; Daniel
Roberts, Minority Staff Assistant/Legislative Correspondent; and
Mark Stephenson, Minority Director of Legislation.
Chairman ISSA. The committee will come to order.
The Oversight Committee exists to secure two fundamental principles: first, Americans have a right to know that the money Washington takes from them is well spent and, second, Americans deserve an efficient, effective Government that works for them. Our
duty on the Oversight and Government Reform is to protect these
rights. Our solemn responsibility is to hold Government accountable to taxpayers, because taxpayers have a right to know what
they get from their Government. It is our job to work tirelessly in
partnership with citizen watchdogs to deliver the facts to the
COMMITTEE
ON
(1)
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American people and bring genuine reform to the Federal bureaucracy. It is our mission statement and it is our calling.
Today, when we discuss, once again Healthcare.gov rollout,
which has undeniably been, and inarguably, a disaster. It is not a
disaster of the making of one man or any one person. In fact, in
many ways it is a sign of a failed system that is often seen in the
Federal Government and very often seen by this committee.
Nearly two months after the Federal website launched, even as
the Administration declares its vast improvements, components of
the back end are still unfinished. Customers are told that at least
in some cases, many cases, their applications may not have been
correctly forwarded to the insurance carrier, meaning they have
signed up; they are not going to get the benefit. They may go to
the hospital and not be covered. Or, if they are covered, it will only
be after weeks, months, or years of paperwork. Additionally, it is
now learned that the ability to properly pay insurance companies
is in doubt and, as a result, estimates are likely to occur. Estimates
not how you do business.
The projects failure raises serious questions on what hindrances
Government faces when it intervenes in the private market. President Obama wisely said that startups, business startups, often
have these sort of problems; that these are the nature of private
sector startups. The difference here is the private sector wasnt just
starting up; the private sector was fully up. Rather than leveraging
the private sector, Healthcare.gov essentially built a whole new
layer, a whole new decision process on top of it.
Before October 1st, the President told Americans that purchasing
insurance on Healthcare.gov would be as simple as shopping for
airfare at Kayak or Expedia. I have shopped at Kayak and
Expedia. The only difficult thing at those sites is choosing from
many choices, well defined, and making your decision. In fact,
nothing has been more different than Kayak or Expedia at the site.
Just yesterday I logged in to the D.C. exchange, where members
of Congress must go, and got an error. We do not have either the
front end or the back end, not just in the Federal system, but in
systems that feed into it, in fact ready.
Can anyone honestly imagine what would happen if you went to
buy an airplane ticket on Kayak or Expedia and the site constantly
crashed, losing your information, or in fact if they told you leave
your personal email and we will email you back in eight or ten
hours in order to tell you that it is now a better time to try to log
on and find prices?
Healthcare.gov is a monopoly. Healthcare.gov is a mandated taxend location. For members of Congress, they will either go to
Healthcare.gov or they will be without insurance and be fined.
Yet, today no one has been held accountable for spending hundreds of millions of taxpayer dollars on a website that simply didnt
serve the President or the American people on his signature legislation.
As someone who spent many years in the private sector, I know
that if I had ever staked my business on a product that performed
like this, it is unlikely I would have gotten a second chance. In fact,
if a company launched like this, they would have to go back down,
regroup, remarket, and relaunch. But that is not the case. Most of
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the laws stay in place; most of the enforcement stay in place; and,
as many of the other committees are looking into, many of the exceptions are not ones which are codified in law or within the purview of the Administration to decide to forgive or delay.
More importantly, the failure of this website, some $640 million
invested, will undoubtedly cause a loss of revenue many times that.
The actual exposure to the vendors and the individuals may be limited, but to the American taxpayer it will be billions of dollars of
lost revenue because of this failure.
I did not vote for the Affordable Care Act. I do not believe that
it will drive down the cost and up the availability and affordable
to the American people. However, getting the system under the law
to work as well as possible and then having a discussion about how
to improve healthcare for the American people is our responsibility.
Today we are joined by Dr. Clifford Winston of The Brookings Institute, who wrote in 2006 that government failures appear to be
explained by a shortsightedness, inflexibility, conflicting policies of
government agencies.
I might note that 2006 was before President Obama was president. As Senator Obama, this was not about his government, this
was about the government of his predecessor. Healthcare was broken before President Obama came.
By its very design, the Federal Government may never be efficient or effective or innovative enough to carry out big initiatives
like Obamacare, nor should it be. Government should not be picking winners and losers precisely because it has proven to be so bad
at it.
More importantly, America is a free market Country, and the
free market has worked for the American people time and time
again. Americans know that when you close off and create an artificial monopoly, it costs more. It always costs more not to have
competition. But, in fact, that is what is happening in healthcare
today. Half of healthcare costs to the Federal Government reflects
the entire cost of defense. Defense is not something we can
outsource to the private sector. Healthcare is something that has
always been within the private sector, and should be. We can hire
the best and brightest, as administrators have boasted, and still
end up with a product that arrives delayed and not working properly.
There are things that are inherently governmental, and this committee will always be absolutely determined to defend the responsibility of Government to do what is governmental, procurement certainly being one of them. Protecting our homeland, securing property rights are just a few of the others. But something as complicated, as complex, as multifaceted as a web portal supposed to
rival sites like Amazon.com for healthcare is something the Federal
Government clearly was not prepared to take on and do properly.
Government inefficiencies are not limited to massive interventions in the healthcare industry. However, as this committee,
which has voted on a unanimous and bipartisan basis the reform
of IT procurement, has discovered, we need to make major changes
in how we do procurement. We also need to do what is inherently
governmental and leverage the private sector to the greatest extent
possible. The hearing today will go a ways toward understanding
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what Government can do, what it cannot do, what in fact should
be expected by our Government and what should be expected to be
innovated in the private sector.
The limitations on big government will never include preventing
waste in a massive scale; it will always happen. And this committee will do everything it can to reduce it, to organize it. But I
believe that, in fact, we have before us an example of something
that may be too big to swallow even for the U.S. Federal Government.
With that, I recognize the ranking member for his opening statement.
Mr. CUMMINGS. Thank you very much, Mr. Chairman, and I welcome our witnesses here today and I look forward to an informative
and spirited discussion.
I must say that, Dr. Thomas, I had an opportunity to read your
testimony and I think it is appropriate that I start out by just
quoting a little bit of it, because this is reading that every single
American and every member of Congress needs to read. It is some
of the best testimony I have read since I have been in Congress,
17 years.
It says: In 1900, a newborn American citizen had a life expectancy of 47 years. A heartbreaking 10 percent of all infants died before their first birthday, and infant mortality was far higher among
the rural and urban poor, whether on southern farms or in northern tenements. By contrast, an American born in 2000 could expect
to live 75 years and infant deaths have been cut by 93 percent. You
go on to say in all these areas of medical and public health
progress, the Federal Government has played a fundamental role
as both sponsor and coordinator of a remarkably concerted effort
involving communities, States, organizations, and institutions
across American society. The Federal Government therefore deserves a great deal of credit for doubling, doubling life expectancy
for Americans, as well as for tackling a long and ever-changing list
of problems regarded as the worst enemies in the Nations health,
from tuberculosis and polio to cancer and AIDS.
According to the chairmans invitation letters today, the committee will examine the institutional limitations on the efficacy of
Government action, and our case study will be the rollout of the
Healthcare.gov website. The fundamental presumption underlying
this hearing is that the Federal Government is somehow incapable
of successfully administering large-scale programs. In fact, the Republican staff briefing memo challenges Governments ability to
effectively design, implement, and administer large-scale projects
and programs.
The problem with this presumption is that it does not take into
account many extremely successful Government programs that
have helped millions of Americans throughout our history. In 1935,
President Roosevelt signed into law the Social Security Act, the
centerpiece of our social security safety network. When it first
launched, critics panned its confusing procedures and less than
half of the labor force participated. Over time, however, it has
reached 90 percent of American workers and has been expanded to
cover the self-employed, to include dependent and survivor benefits,
and to provide for cost-of-living adjustments.
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Thirty years later, in 1965, President Johnson signed Medicare
into law. Like the Social Security rollout, there were challenges initially and the American Medical Association called it the beginning of socialized medicine. The Federal Government had to negotiate with hospitals, nursing homes, and insurance companies, and
had to coordinate with all 50 States. Eventually, 93 percent of eligible seniors enrolled in Medicare and the program has been expanded and improved several times since then.
Forty years after that, in 2005, President Bush signed into law
the Prescription Drug Program, on Part D of the Medicare law.
Like Social Security and Medicare before this, this drug program
also experienced challenges in its rollout. Newspaper headlines
were dire, stating: Confusion Reigns Over Drug Plans, Not
Ready for Prime Time, Prescription Drug Plan Part D Gets an
Early F.
In all of these cases early setbacks were resolved, critics were
proved incorrect, and these programs are now immensely popular
with the American people. But, more importantly, they prevented
our Nations seniors from dying penniless and homeless. They provide a basic level of security to the American people where the private sector failed to do so. But it also provides something else: it
is called dignity.
The same is true of the Affordable Care Act. The private insurance market discriminated for decades against people with preexisting conditions. Insurance companies threw people off existing
plans when they discovered evidence of previous illnesses the patients themselves did not even know about. But now, thanks to the
ACA, millions of Americans who could not get health insurance in
the private market now have access to it.
In terms of todays hearing, I think everyone understands what
is going on. The Republicans want to use the initial challenges with
the Healthcare.gov website to make a broader argument that the
Federal Government cannot administer large-scale programs effectively and that we are all better off leaving it to the private sector.
But we have tried that, and it simply does not work.
I believe the premise for todays hearing is fundamentally flawed.
Our Countrys experience with Social Security in 1935, Medicare in
1965, and the Prescription Drug Program in 2005 demonstrates our
Government is fully capable of overcoming the initial problems
with the implementation of programs that help millions of people
in their daily lives. I remind all Americans that we are a can-do
Nation. We are a can-do Nation and we are better than that.
This premise becomes even more absurd when you look at our
Nations broader history. In the 1940s we mobilized our entire
Country, our people, our industry, and our workers to defeat the
Nazis and the Japanese in World War II. In the 1960s we tapped
the best and brightest minds in government and the private sector
to build a space program that put a man on the moon for the first
time in human history. Our Government does not always work as
well as it should, but it is certainly capable of great things when
there is a strong commitment to the underlying goals we all share.
In the case of the Affordable Care Act, we know that one component of the rollout, the Healthcare.gov website, did not work as it
should have. But we also know from testimony before this com-
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mittee that another component, the complicated interagency data
hub that most experts worried about, worked much more smoothly,
and that is a testament to the strong work of the agencies and contractors involved.
As I close, as we go forward, I hope that we can work together
to solve any problems that arise in order to improve the program
so that it works effectively and efficiently. It is not about who we
fight against. It is not even about who we fight with. It is about
what we fight for. What we fight for, and this moment is greater
than this moment; it is about generations yet unborn. In that way
we can honor the commitment we made in the Affordable Care Act
to help people who could not get health insurance to attain it now.
Mr. Chairman, I look forward to todays hearing and I thank you
for calling it.
Chairman ISSA. Thank you.
All members may have seven days to submit opening statements
and other extraneous material for the record.
We now welcome our distinguished panel of witnesses.
Dr. De Rugy, I always get your first name. It is a lovely name.
This is not the first time I have had trouble with it. Dr. De Rugy
is Senior Research Fellow at the Mercatus Center at George
Mason.
Obviously, Dr. Winston. Welcome. Dr. Clifford Winston is a Trust
Senior Fellow at The Brookings Institute.
Dr. Mark Calabria is Director of Financial Regulation Studies at
the Cato Institute.
And Dr. Karen Thomas is a Historian and Communications Associate at Johns Hopkins Bloomberg School of Public Health.
Welcome.
Pursuant to the rules, would you all please rise and take the
oath, and please raise your right hands?
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing but
the truth?
[Witnesses respond in the affirmative.]
Please be seated. Let the record reflect all witnesses answered in
the affirmative.
In order to allow time, without objection, your entire opening
statements will be placed in the record, and I ask you to observe
the lights in front of you and limit your time to five minutes.
Dr. De Rugy.
WITNESS STATEMENTS
STATEMENT OF VERONIQUE DE RUGY
Ms. DE RUGY. Chairman Issa, Member Cummings, members of

the committee, it is an honor to appear before you today.
While the Nation is focused on the day-to-day problems related
to the ACAs rollout, these are only the most recent and visible
signs of the fundamental flaws that plague Government intervention in general. My testimony will focus on why Government intervention is often doomed to fail and it will illustrate this point with
the example of a specific loan guarantee program.
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The idea that Government fails shouldnt be a surprise to anyone
who has read the academic work of public choice economists such
as Nobel Laureate James Buchanan, George Stigler, or Vernon
Smith. Their work has explained why, despite good intention and
nearly unlimited resources, top-down solutions not only fail to address the problem they are trying to address, but also sometimes
and often makes the problem worse.
There are many reasons for this, but I would like today to highlight two of them. The first one is that even with the best of intention, the incentive of elected officials and bureaucrats to prudently
manage taxpayers money are very weak. They are not rewarded
when they maximize consumer value, nor are they necessarily punished when they take unnecessary risks or fail to minimize costs.
In fact, no one in Government, so far as we know, has been fired
over the problems with the ACA website. Meanwhile, private companies that misstep are quickly replaced by better competitors.
A key reason for these poor incentives is that Government actors
all operate within limited knowledge. While individuals acting in
markets are able to use price signals to guide their decisions, Government decision-makers have no such guides. Hence, they have no
way of accounting for their value or cost their decision might create
for others.
The second reason why Government often fails is that interest
groups are able to exploit this environment to obtain their own
goal, often at the expense of the public welfare. And for this you
dont have to go to look further than the sugar lobby and the tariffs
and subsidies they are getting and the increased price of sugar that
they impose on all customers.
The bottom line is that in Government intentions do not equal
results. More importantly, this is true no mater who is in power,
and it is true across many Government programs, not just
healthcare.
The Department of Energys 1705 loan program is a good example of the gap between what a programs proponents claim it will
achieve and what it actually does. This policy was put in place
under the claim that renewable energy companies do not have access to sufficient credit to support new projects. These alleged imperfections of the credit markets, we are told, are particularly important for small and innovative companies. However, when you
look at the data, what you find is that nearly 90 percent of the
1705 loans go to projects that are backed by large and well-connected companies such as NRG Energy or Goldman Sachs. So in
that sense it is very hard to argue that the loans are going to small
innovative companies that wouldnt have access to credit if indeed
their project was viable.
This program is also a good example of Government favoring two
distinct interest groups: first, the bank, because the lenders now
dont have to face the risk of lending money to a company that may
default; and, second, the companies that are now benefitting from
very good rates and good borrowing conditions, especially if compared to their competitors.
The taxpayers, on the other hand, bear the risk and shoulder the
burden when companies like Solyndra or Abound Solar default on
their loans and when they go under. The other losers in this case,
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of course, are the companies in that same field who now do not
have access to credit, even though they have viable projects, because all the money tends to go to companies that are backed by
Government guaranteed independently of the merits of the project.
In addition, like most Government interventions, these programs
and, of course, exponentially larger program interventions such as
the health care law, create serious and systemic distortion in the
market. However, the tragedy is, despite evidence, lawmakers often
dont get rid of inefficient programs, and that is because they are
more likely to respond to the pressure of vested interest groups
than they are to actually try to protect taxpayers, who very often
dont even realize the cost of these programs, whether it is directly
or indirectly.
Now, there is good news. We have over six decades of research
on Government decision-making to help guide policy decisions
going forward. In many cases a sensible solution is simply to leave
some activities outside of the Government purview. This is not a
loss, but a gain for Government. Not only will it prevent the type
of Government failures that we have been talking about, but it will
also allow the Government to focus on its core function: the provision of public good and the protection of property rights.
Thank you.
[Prepared statement of Ms. De Rugy follows:]
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I.J~I
II~~
MERCATUS CENTER
George Mason University
TESTIMONY
WHY GOVERNMENT INSTITUTIONS FAIL TO DELIVER ON THEIR

PROMISES: THE PUBLIC CHOICE EXPLANATION
BY VERONIQUE DE RUGY
House Oversight and Government Reform Committee
December 4. 2013
Chairman Issa, Ranking Member Cummings, thank you for the opportunity to testify today regarding the limitations of goveqlment intervention.
Despite Washington's recent focus on the disastrous Affordable Care Act website rollout, policymakers are missing
what the.tollout glitches symbolize: the fundamental flaws that imbue government intervention.
The work of public choice economists such as Nobel laureate James Buchanan, Gordon Tullock, Mancur Olson,
and William Niskanen has shown that, despite good intentions and lavish use of taxpayer resources, government
solutions are not only unlikely to solve most of our problems-they often make problems worse.
PUBLIC CHOICE ECONOMICS: POLITICS WITHOUT ROMANCE

Congress spends a great deal of time discussing the need to address market failures such as monopolies and pollution. However, even when such a problem does exist, the policies implemented to address it are often ineffective
or undesirable.l That's because, as public choice economists have pointed out, while there may be market failures,
there are also government failures. In his Nobel Prize acceptance speech, popularized in his famous essay "Public Choice: Politics without Romance:' James Buchanan explains why looking to government for solutions often
results in more harm than good!
Public choice theory applies economic analysis-or the study of how incentives influence behavior-to politics. For
instance, economists assume that people interacting in the marketplace are mosdy driven by self-interest. That
doesn't mean that people aren't concerned about others, or can't act charitably. It simply means that their dominant motive-whether they are employers, employees, or consumers-is a concern for themselves. Public choice
economists make the same assumption about government actors. As Jane S. Shaw writes in a primer about public
choice economics, "although people acting in the political marketplace have some concern for others, their main
motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest."'
1. Kenneth Arrow mathematically demonstrated how political consensus is generated through rule manipulation rather than careful considera~
tion of the issues or constituent needs. See Kenneth Arrow, Social Choice and Individual Values (New Haven, CT: Yale University Press. 1951).
2. James M. Buchanan. Public Choice: Politics without Romance.~ Policy Magazine 19, no. 3 (Centre for Independent Studies, Spring 2003),
http://www.cis.org.au/images/stories/policymagazine/2003-spring/2003193james-m-buchanan.pdf.
3. Jane S. Shaw. Public Choice Theory. ~ The Concise Encyclopedia of Economics (Library of Economics and Liberty. 1993). http://www.econlib
.org/library/Enc1/PublicChoiceTheory.html.
For more information or to meet with the scholars, contact
Robin Walker, (202) 55()"9246. rwalker@mercatus.gmu.edu
Mercatus Center at George Mason University, 3351 Fairfax Drive. 4th Floor, Arlington, VA 22201
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The ideas pre$ented in this document do not represent official positions of the Mercatus Center or George Mason University.
10
In other words, unlike many economists before them, public choice economists revolutionized the field of economics by having symmetric assumptions about humans in public and private settings and replacing "romantic and
illusory notions about the workings of governments" with more realistic ones.
GOVERNMENT INCEI~TIVES
In the marketplace, scarcity guarantees that people compete for resources. In that environment, the price system
and the risk oflosses, combined with the prospect of potential profit, are powerful signals that guide people's decisions to prudently buy, sell, invest, and save.
But unlike in the marketplace, the incentives for good management in government are very weak. For instance,
even though lawmakers are expected to pursue the "public interest;' they make decisions that use other people's
money rather than their own. This means that their exposure to the risk of a bad decision is fairly limited, and there
is little to no reward for spending taxpayers' money wisely or pro,~ding a service effectively or efficiently.
Fnrthermore, because each voter bears a very small part of the cost of these bad decisions, and they have their daily
lives to manage, voters lack the incentives to sufficiently monitor the government.' And, as Shaw explains, voter
ignorance can be quite rational:
Even though the result of an election may be very important, an indi~dual's vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has ~rtually no chance
to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter. E~dence for this claim is found in the fact that public opinion polls consistently find
that less than half of all voting-age Americans can name their own congressional representative.
That is not, of course, the case in the private sector, Consumers have great incentives to make sure the car or the
house they buy is worth the price they will pay for it. Employers also have great incentives to make sure they hire
the best employees, as there is a high and direct cost for employing someone who can't perform the job he or she
is hired for.
Yet lawmakers-however well-intentioned-face serious difficulties in making the right decision, Many factors
come into play, but it is worth highlighting the following two. First, the government does not have better information than private agents operating in the market, whether this be the health care market or any other market
(financial, housing, etc.).' Making matters worse, gnvernment decision-makers are usually insulated from market
signals, and thus often lack important information about the problem at hand and the market itself.
Second, the resources government pro~des are often so enticing that companies may switch their focus from
meeting the needs of customers to meeting the wishes of gnvernment officials-thus producing a less effective outcorne.' These effects lead to the malinvestment of taxpayers' money and often of private capital as well.
THE UNHEALTHY MARRIAGE BETWEEN GOVERNMENT AND INTEREST GROUPS

Economists Mancur Olson,' Gordon Tullock,' and others have also shown that government agents receive more
benefits when they act on behalf of special interests (often under the guise ofwarking on behalf of the public gnod).
4, One of the first public choice economists to point this out is Anthony Downs in An Economic Theory of Democracy. A modem exposition of
this "rational irrationalityft was produced by Bryan Caplan in his Myth of the Rational Voter. Anthony Downs, An Economic Theory of Demir
cracy (New York: Harper and Row, 1957); Bryan Caplan. The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton. NJ:
Princeton University Press, 2008).
5. F. A. Hayek. "The Use of Knowledge in Society: American Economic Review 25, no. 4 (1945): 519--30.
6. William Niskanen, ~Bureaucrats and Politicians, ~ Journal of Law and Economics 18, no. 3 (1975): 617-43.
7. Mancur Olson, The Logic of Collective Action (Cambridge, MA: Harvard University Press, 1971).
8. Gordon Tullock, ~Rent Seeking," New Pa/grave Dictionary of Economics. ed. Steven N. Durlauf and lawrence E. Blume (Palgrave Macmillan,
2(08).
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MERCATU5 CENTER AT GEORGE MASON UNIVERSITY
11
In politics, decisions aren't driven by the profit motiye as they are in the marketplace. Instead, they are for the
most part driven by the desire to get reelected. One important element in the pursuit of power is the role played
by interest groups. First, as I mentioned before, lawmakers face little to no cost for conferring benefits on interest
gToups, even when it imposes large costs on the majority. In addition, interest groups can provide electoral support
(through their votes) and funding for electoral campaigns (through donations), which may be key to winning an
election. \\"Tith so much government money up for grabs, interest groups also have a strong incentive to organize
and lobby the government for a piece of the public pie.
Combined with the weak incentives for lawmakers to be good stewards of taxpayers' money, strong incentives to
cater to interest groups can explain why government program mechanisms tend to be organized around picking
winners and losers instead of rewarding success or punishing failure in the same way as the market.
This behavior explains why Congress continues to vote for sugar tariffs that increase the price of sugar and the
profits of us sugar producers at the expense of consumers. It also explains the existence of corn-based ethanol
subsidies, which create an artificial market that diverts the grain away from being used for food and toward the
subsidized market, and has been widely blamed for increases in global food prices-and seems to make the environment even worse.
In the case of the Affordable Care Act, public choice explains why the program was designed to expand health care
insurance coverage rather than to improve health outcomes-a choice that benefits the insurance industry without
necessarily producing a better and more affo'rdable health care supply-and how the companies that are well connected usually stand to benefit the most from government interventions.
It also explains why this health care law, like Medicare and Medicare Part D, is yet another law that concenttates
benefits on older Americans (who are relatively richer than the rest of the population and more active voters)' at
the expense of young and healthy ones (who are often relatively poorer and aren't as active voters).10
REGULATORY CAPTURE
Public choice economists have also explored the role that bureaucrats play in this cycle of bad decision-making.
Economists know how potent this type of lobbying can be. In his seminal 1971 article, "The Theory of Economic
Regnlation," Nobel laureate George Stigler introduced so-called capture theory." Stigler argued that regulatory
agencies are subject to pressure from both interest groups and the electorate at large. But, because interest
groups are better able to organize and promote their interests, they hold greater power over what regulations
are implemented.
A corollary to regulatory capture is the revolving door phenomenon, where agencies hire from firms they oversee,
because, as Stigler also pointed out, regulation requires in-depth industry knowledge. Consider the former secretary of the Treasury, Henry Paulson. The former chairman and chief executive officer of Goldman Sachs played an
important role in shaping and directing the government rescue of the financial industry, including Goldman.
GOVERNMENT INSTITUTIONS ARE INHERENTLY PRONE TO BAD DECISION-MAKING, OFTEN

INDEPENDENTLY OF WHO IS IN POWER
The problem with the Affordable Care Act rollout is far greater than the website glitches or the fact that millions of Americans cannot-as had been promised-keep their current health insurance policies. Rather, it's
9. According to the combined data on population trends, economics, and health issues from 15 federal agendes, Americans over the age of 65
are in remarkably good shape compared to those of previous generations. Their average net worth has increased almost 80 percent over the
past 20 years: they form a larger share of the high-income group and a smaller share in lower-income groups than their predecessors; they are
far better educated. and they live longer and healthier Jives. They are also doing much better than younger Americans. If anything, the recent
financial crisiS has only made the gap between older and younger generations wider. Federal Interagency Forum on Aging-Related Statistics.
Older Americans 2008: Key Indicators of Well-Being (Washington, DC: US Government Printing Office, March 2008), http://www.aoa.gov
!agingstatsdotnet!Main_Stte!Data/2008_Documents!OA_2008.pdf.
10. US' Census Bureau, table 399, "Voting-Age Population-Reported Registration and Voting by Selected Characteristics: 1996 to 2010," from
Statistical Abstract ofthe United States: 2012, http://www.census.gov/compendia/statab/2012/tables/12s0399.pdf.
11. George Stigler. "The Theory of Economic Regulation: The Bell Journal of Economics and Management Science 2. no. 1 (1971): 3-21.
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MERCATUS CENTER AT GEORGE MASON UNIVERSITY
12
that goyernment institutions themselyes are inherently prone to low-quality decision-making, with a strong
incentive to choose the interest of politic all)' favored groups.
Being willing to ad:nowledge that government intervention often fails is important, but understanding '''hy it fails
is far more important for designing better policies. That often means that the government should abstain from
intervening altogether. As my colleague Matt Mitchell explains,
James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close cousin, Constitutional Political Economy, didn't stop their analysis after they found that politicians sometimes behave badly.
Like James Madison before them, they thought of constructive ways to make political actors behave better,
sometimes by placing certain decisions beyond their reach."
When the government fails to deliver on the promises it made, many are tempted to argue that if only more money
had been spent or if only someone else had been in charge, the promise could have been met. That's unlikely, mostly
because the institutions of government themselves are inherently incapable of performing certain tasks well even
when the people in power are smart, compassionate, and well-intentioned."
For instance, a massive takeover of the health care market was bound to fail from the start, regardless of who was in
charge or how much money the program had been given. It also explains why so many government policies not only
fail to fix the problems they confront-the solutions are often worse than the problems. It doesn't mean, of course, that
those who hold power don't have some influence on the outcome; it's just that it often isn't the most important factor.
CASE STUDY: THE DEPARTMENT OF ENERGY'S 1705 LOAN PROGRAMS

With that in mind, government officials should understand that the problems with the healthcare.gov rollout are
not unique to this particular law. In fact, we can expect these types of negative consequences when the government
intervenes in any market-not just health care.
For instance, I have attached a copy of testimony I gave before this committee back in July 2012, that looks at the
Department of Energy's 1705 loan guarantee programs. This is what I found:
The 107 loan guarantee program is the program that extended $535 million in loan guarantees to Solyndra, a solar
company that went under in 2011 leaving taxpayers with the tab. Since then, two additional companies-Beacon
Power Corp and Abound Solar-have announced that they would suspend operations and filed for bankruptcy.
Abound had used about $70 million out of the $400 million it got through the DOE program, which is likely to
resnIt in a cost of $40 million to $60 million to US taxpayers after Abound's assets are sold and the bankruptcy
proceeding is completed.
Despite this, lawmakers on both sides of the aisle refuse to end the program, offering two defenses for its continuation. First, advocates argue that renewable energy companies do not have access to sufficient credit to support
new projects. In addition, the DOE argues that encouraging investment in green technology would create up to 5
million jobs.
But these claims don't withstand scrutiny. Although some 1705 loans went to companies that could not get capital
without the government guarantee-and clearly shouldn't have in the case of Solyndra-this may be the exception
rather than the rule. Indeed, nearly 90 percent of the loans went to subsidize projects backed by large companies
such as NRG Energy and Goldman Sachs Group Inc., and would have easily secured access to capital, if the projects
were indeed viable.
12. Matthew Mttchell, James M. Buchanan: Realistic Optimist: Neighborhood Effects (blogl. January 11. 2013. http://neighborhoodeffects
.mercatus.org/2013/01/11/james-m-buchanan-realistic-optimist!.
13. Through no fault of their own, government actors lack the means to best aggregate dispersed knowledge and make adequate economic calculations because they lack functioning market feedback mechanisms. See Ludwig von Mises, Socialism: An Economic and Sociological Analysis
(New Haven, CT: Yale University Press, 1951).
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13
Second, under 1705. $16 billion in loans v,-ere guaranteed and 2.388 permanent jobs "Tere created. That means that
one job was created for every 56.7 million in taxpayer exposure. These numbers dispel the idea that this loan program is an effective jobs program.
However, the real problem with the 1705 loan program lies below these numbers. In fact, the Solyndra failure is the
symptom of more fundamental problems that make loan guarantee programs a bad deal for Americans.
First, every loan guarantee program transfers the risk from lenders to taxpayers. This creates what economists call
a moral hazard prohlem: because the loan amount is guaranteed, hanks have less incentive to evaluate applicants
thoroughly or apply proper oversight. These programs privatize gains and socialize losses-in other words, taxpayers bear the downside risk, but the companies and the banks that receive the guarantees get the upside benefit.
Second, loan guarantees give an incentive to lenders to shift resources toward snbsidized projects and away from
nonsubsidized ones. This has a cascading effect. For instance, once the government subsidizes a company, that
company becomes a relatively safe asset which then attracts private capital, independently of the merits of the
projects. That capital is then unavailable to unsubsidized projects, even if they have a much higher probability of
success and a more viable business plan. The subsidy can thus hurt the production of green energy, as an unrealistic
but subsidized green energy project thrives while other, more viable green energy projects starve.
Finally, every loan guarantee introduces political incentives into business decisions, creating the conditions for
businesses to seek financial rewards by pleasing political interests rather than customers. As my colleague Matt
Mitchell explains, this can lead to cronyism," and it has real economic consequences.
Whatever the intentions that motivated the program, it just doesn't work. The 1705 loan program does expose taxpayers to Solyndra-like waste. But of more concern are the systematic distortions it introduces into the market and
the unintended consequences those can have. Loan guarantees are privileges granted to special interests, and there
is no better time than now-as we grapple with mounting public debt-to get rid of them.
14. Matthew Mitchell, -The Pathology of Privilege: The Economic Consequences of Govemment Favoritism~ (Mercatus Research, Mercatus
Center at George Mason University. Arlington. VA. July 9, 2012), http://mercatus.org!publication/pathology~privilege-economic-consequences
~golJernment-favoritism.
ABOUT THE AUTHOR

Veronique de Rugy is a senior research fellow at the Mercatus Center
at George Mason University. Her primary research interests include the
US economy. federal budget, homeland security, taxation. tax competition, and financial privacy issues. Views expressed here are her own.
ABOUT THE MERCATUS CENTER

The Mercatus Center at George Mason University is the world's premier
university source for market-otiented ideas-bridging the gap between
academic ideas and real-world problems.
A university-based research center, Mercatus advances knowledge
about how markets work to improve people's lives by traininggraduate students, conducting research, and applying economics to offer
solutions to society's most pressing problems.

Our mission is to generate knowledge and understanding of the
institutions that affect the freedom to prosper and to find :>ustainable
solutions that overcome the barriers preventing individuals from living
free, prosperous, and peaceful lives.
Founded in 1980, the Mercatu$ Center is located on George Mason
University'S Arlington campus,
www.mercatus.org
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14
Dr. Winston.
STATEMENT OF CLIFFORD WINSTON
Mr. WINSTON. Thank you very much. I am very happy to be here.

Chairman Cummings posed a very challenging question. He
raised the issue about successful Government interventions and
Government projects. And it is challenging because the issue is
how do we determine success. What is the benchmark that we use
for success? And if Government does not achieve that benchmark,
how should we proceed? So my testimony is really trying to shape
that framework and give us some information about what we know
about success, the evidence, and alternative ways to proceed.
I am an economist, so I am going to follow the way economists
do things: first outlining the theory of why Government intervenes
in economic life, what it is trying to do and what it should be
doing, and what the empirical evidence is on its interventions; and
then given the motivation of this session by the ACA, I will try to
draw some basic implications.
All right, the theory. Government intervenes in economic life for
two reasons: one, to correct a market failure: monopoly,
externalities like collusion. That is what we mean by market failure. The other is to pursue a social goal. The market is efficient,
all right? There is nothing wrong with the market in terms of its
allocation, but the public doesnt like the allocation that exists,
okay? So we want to do things like reduce poverty. All right? The
third issue is macro. We are not talking about macro economics
here, thankfully.
Market failure involving large projects, where do things go
wrong? One, they are simply not supplied. They are not privately
profitable, even though they are publically, socially desirable; or
there are free riders, so there is an under-supply of that kind of
project. Governments role, then, steps in and tries to provide the
project, but has to do it efficiently. And when I mean efficiently,
I am talking about it prices it right, makes cost-benefit assessments and investments, produces the project at minimum cost, and
provides technological advance.
What are social goals? Well, the social goals we are talking about
here are what we call merit goods. These are goods and services
American society believes that everyone should have, regardless of
whether they can afford them. Social insurance is obviously what
we are talking about in this case, coverage for healthcare. These
usually involve some sort of redistribution. You are going to be taking some resources from some people, giving them to another. This
is something, though, that is a democratic decision. That is fine,
but it should be done at minimum cost. So there is still an assessment there. Market failures, you are looking to try to maximize efficiency. Social goals, you try to minimize costs.
So what is the evidence that we have on how well Government
has done on this? I go through this in detail in my written testimony. What I can say here, in the areas that I have done a lot of
work in, in transportation, anywhere from highways, airports, air
traffic control, inland waterways, urban transit, passenger rail.
Probably as I even say these things you are beginning to think of
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the symptoms: congestion, delays, budget deficits. So these actually
are symptoms, and they are symptoms of the economic inefficiencies: mispricing, poor investment, production cost overruns. These
are all familiar, but these things total up the hundreds of billions
of dollars of cost. And, of course, there are other things that we can
see as inefficient.
So the question is how can we improve Government in these
areas. Social policies are not really my area of expertise, but I
think it is pretty much well known that Social Security, Medicare,
and so on, regardless of whether they have certainly established,
and they have, are they achieving their goals at minimum cost?
And obviously that is a high standard, but I think that is really
what we are looking at, how can we do these things more efficiently.
All right, so faced with evidence of Government failure trying to
correct market failures and pursue social goals, what is the explanation for this? And it has actually already been given by the
chairman: certainly agency limitations; technical expertise and a
culture where you dont provide the kind of retro assessments to
sort of correct where you are going; regulatory constraints. What
I found interesting about the ACA matter was actually a provider
offered to do the website at no cost, but was told that he couldnt
do it because of regulatory constraints. Political forces, obviously,
stakeholders, and it is a big part of what public choice is.
So there are well known reasons for failure. What now do we
say, pulling this all together for ACA? I think the lessons are there
were predictable concerns in rolling out the website, technical
issues, lack of ongoing assessment, inflexibility, and various constraints. I think, obviously, the full story hasnt been told yet and
we will see other explanations, but I am sure that they will have
a familiar ring to it.
The question, though, is the key point of what I am trying to get
at. Too much of the discussion has been attacking ACA and, indirectly, the social goal of universal coverage. To me, that is off the
table. That has been decided by the democratic process. The President has been elected and re-elected on that position. All right?
That is how that has to be decided. The analytical issue and the
policy issue, though, is achieving that goal at minimum cost. That
is what we ought to be talking about; how can we do this more efficiently? We already see ways that some States are doing it in a
better way than others. We should certainly be open to that. But
I would also say, too, that we can certainly be open to the private
sector having greater involvement.
[Prepared statement of Mr. Winston follows:]
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16
GOVERNMENT IMPLEMENTATION OF LARGE SCALE PROJECTS:

GOVERNMENT FAILURE, ITS SOURCES, AND IMPLICATIONS
FOR THE ACA WEBSITE LAUNCH
Statement of Clifford Winston

Searle Freedom Trust Senior Fellow
Economic Studies Program
The Brookings Institution
Washington DC 20036
202-797-6173
CWinston@brookings.edu
http://www.brookings.edulscholars/cwinston.htm
"Efficacy of Government Actions"

Hearing before the
Committee on Oversight and Government Reform
United States House of Representatives
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December 4, 2013
17
Introduction
The most extensive and contentious recent government intervention in Americans' lives is
undoubtedly the 2010 Affordable Care Act (ACA). In light of the federal government's failure
to successfully launch its website, www.HeatlthCare.gov.toimplementtheAct.itis useful to
step back and broadly assess government's efforts to implement and manage large projects.
In my testimony, I first discuss the conceptual justification for the government taking on large
projects and what its objective should be. I then provide an overview of the available empirical
evidence on the economic effects of government's management of a range of projects and offer
possible explanations for the fmdings. I conclude by drawing some implications that pertain to
the government's delay in launching the ACA website.
Theory
Two reasons exist to justifY government implementation of large projects. The fIrSt is to correct
a market failure, which could arise when a socially desirable service (that is, one whose social
benefits exceed social costs) is not privately offered because it is unprofitable or requires
enormous financial capital that may be unavailable in private markets. Public bus transit systems
are often alleged as an example of the former and the interstate highway system is alleged as an
example of the latter. Market failure also occurs when a service is undersupplied because it is a
public good and susceptible to the free rider problem. National defense is a classic example of a
pure public good. Innovative activity by firms may also result in free riders by creating positive
spillovers to competitors.
The government can increase the nation's welfare by financing socially desirable projects and
services, including public goods, which would not be supplied by the private sector. In practice,
the government can provide the service or negotiate a contract with a private firm to provide the
service. In the ideal case, the government corrects a market failure and maximizes economic
efficiency by setting efficient user charges, financing investments that equate marginal benefits
and marginal costs, and minimizing production costs. Note that the projects and services
requiring the largest investments constitute the nation's physical infrastructure. Government has
tried to spur innovation in several ways, including the establishment of a patent system and an
array of subsidies for firms.
The second reason that could justifY government implementation of large projects is to pursue
social goals--that is, American society, like any society, seeks to solve other social problems in
addition to correcting market failures and promoting economic efficiency. Those goals can be
categorized broadly as attempting to reduce poverty, ensure fairness in labor markets, and
provide merit goocts--goods that American society believes every citizen is entitled to regardless
of whether he or she can afford them, including an education, insurance against certain events
that could dramatically lower the quality of life (social insurance), and protection from criminals,
hostile countries and terrorists, and natural disasters.
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Generally, policies to achieve those goals redistribute resources from one group of people for the
benefit of another group of people, but government should nonetheless attempt to achieve those
goals at minimum cost to society. The ACA arguably tries to provide a merit good and to some
extent correct a market failure.
18
2
What does the empirical evidence indicate about governmenfs involvement in projects and
services to correct market failures and achieve social goals? My 2006 Brookings book,
GOl'emment Failure Versus Market Failure, indicated government's efforts generally resulted in
substantial losses in economic efficiency and missed opportunities to benefit society in a costefficient manner. Here I provide a brief overview and update of my fmdings.
The federal government, sometimes in collaboration with state and local governments, is
responsible for financing and managing highways, airports, air traffic control, inland waterways,
urban transit, and intercity passenger rail. In the appendix, I present a table that surmnarizes the
economic inefficiencies and annual welfare costs from public provision of infrastructure and
urban transit that appeared in my Journal of Economic Literature, September 2013 survey of the
performance of the US transportation system. The total annual cost of the economic efficiencies
exceeds $100 billion. The inefficiencies are attributable to the fact that government's provision
and management of transportation services has not been guided by economic principles: prices
do not reflect social marginal costs, especially a user's contribution to congestion and delays;
investments are not based on cost-benefit analysis and on accurate forecasts of costs and benefits
and have therefore failed to maximize net benefits; and operating costs are significantly inflated
by regulations.
The vast inefficiencies have important implications for transportation-related policies to
strengthen the economy. For example, the stimulus program and ongoing calls to increase
infrastructure spending must recognize that potential improvements in the nation's productivity
and employment are lessened by policy failures in the current transportation system. Similarly,
the Obama administration's vision of a high-speed passenger rail network as a transformative
investment must consider costs and benefits that have traditionally been overlooked by
government. Indeed, Edward Glaeser performed a series of cost-benefit calculations that were
published in his 2009 New York Times column and consistently found that building such a
network would not be socially desirable.
The evidence that I report in Government Failure casts strong doubt on whether federal
programs to spur innovation have supported socially beneficial programs that would have been
undertaken without federal assistance. Moreover, some federal support has resulted in no
accomplishments and cost taxpayers billions. The recent Solyndra fiasco harkens back to the
Clinton administration'S failed effort to produce a high-gas-mileage car using a hybrid
propulsion system.
Still other large-scale government projects and services have experienced serious problems
including the U.S. postal system and the government's allocation and management of public land
for grazing, natural conservation, and recreational activities. The former has continued to
struggle financially, with ongoing threats to discontinue Saturday service, and the latter has come
under attack after the government shutdown forced national parks to close.
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Finally, although I am much less familiar with empirical assessments of government services and
programs to pursue social goals, such services and programs are undoubtedly not being provided
at minimum social cost and are wasting a vast amount of resources.
19
3
Explaining Government Failure

Agency limitations, regulatory constraints, and political forces combine to cause and maintain
inefficient policies and to impede efficient reforms. For example, the Federal Aviation
Administration (FAA) is at the heart of airport and air traffic control inefficiencies because it
lacks organizational independence and is prevented to a significant extent by both the U.S.
Department of Transportation and Congress from using its resources-and from encouraging
airports to use theirs--more efficiently. Given that it faces opposition from two powerful
branches of govermnent, it is not surprising that the FAA fmds it so difficult to reform its
policies.
Govermnent agencies do little to assess whether their vast public expenditures have been spent
efficiently. Transportation officials have told the GAO (GAO-05-172) that little incentive exists
for them to direct available funding to performing outcome evaluations, but they have also said
that potential risks do exist from fmding out that a project is not providing the intended benefits.
Thus, because govermnent measures inputs instead of outputs in many venues, transportation
agencies tend to declare that a project is a success once it is operating.
Agencies are likely to have status quo bias because they may lack the technical expertise to
ensure that new technologies are implemented effectively and efficiently. For example, the
Federal Highway Administration has not placed a priority on using advances in information
technology to improve highway travel. At the same time, FAA's well-publicized delays in
implementing new technology have tarnished its reputation to manage air traffic control
effectively.
Of course, special interest politics is transparent in several areas of policy. In transportation,
state and local govermnent officials lobby for increased federal assistance for surface
transportation grants and increased flexibility on how they use those funds; the American
Automobile Association and the American Trucking Association have opposed efficient
congestion tolls and axle-weight charges; labor unions have opposed removing Davis-Bacon
regulations; and urban transit subsidies have largely been accrued by powerful interests-higher
wages to labor and higher profits to suppliers of transit capital. Finally, powerful interest groups
are supporting federal funding of a national high-speed rail system.
Implications for ACA Website
The potential for govermnent failure in implementing and managing a large project should be
foremost in the mind of the officials of a govermnent agency and department when it takes
responsibility for a new project. Accordingly, it is vital for those officials to take steps to
anticipate and address potential failure. Based on my preceding discussion, the pOtential
problems facing the govermnent's launching of the ACA website include but are not limited to:
Limited technical expertise and an over-reliance on contractors;
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Little, if any, rigorous and transparent ongoing assessment because of a fear of exposing
problems;
20
4
Status-quo bias and an inflexibility and inability to make important changes in managing a
project;
Constraints that may affect budgeting and adoption of state-of-the-art technology.
The unfortunate result of the functionality problems and delay in launching the federal ACA
website is not that the desirability of the social goal of universal coverage is necessarily
reduced-the pursuit of that goal is a democratic decision that must be detennined by our
political system-but that the social costs of achieving this goal are already, and will continue to
be, inflated. Indeed, it is my understanding that some states that produced effective ACA
websites have also negotiated lower rates with insurance companies for their consumers as
compared with the rates obtained by states that are using the federal website and thus did not
benefit from rate negotiations. It is also possible that a state that did not produce its own website
could reduce the future efficiency costs of using the federal website by arranging to pay a fee to a
state that produced an effective ACA enrollment website to expand that website so people from a
different state could also use its services to sign up for their insurance.
In sum, the controversy surrounding the Act should not blind policymakers to their obligation to
implement the Act at minimum social costs and, if necessary, to explore alternative ways of
doing so.
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21
5
Appendix
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Item
Aggregate Welfare Cost ($2005)
Increasing travel delays for motorists,

truckers, and shippers
Cars and trucks are not charged for

contributing to congestion ($45 billion
excluding loss to truckers and shippers)
Excessive damage to highway

pavements
Truckers are not charged efficient pavement-wear

taxes for road use ($10.8 billion)
Excessive structural stress on

bridges
nla
Increasing delays for air travelers and

cargo during takeoffs and landings
Runway capacity is suboptimal and

congestion tolls are not charged for takeoffs
and landings ($16 billion) ; costs do include
cargo
Increasing delays for air travelers in

congested airspace near airports
nla
Increasing delays on waterways
nla
Highways require excessive

repairs and repaving
Road thickness thinner than optimal ($12.5 billion)

Inferior materials are used to lay asphalt ($1 billion
just for California)
Damage to cars and trucks from roads

in poor condition
Total damage costs to cars are estimated to

be $64 billion; welfare cost nla
Highway labor costs are inflated
Federal and state regulations raise wages (welfare

costnla)
The allocation of highway funds

is inefficient
Funds are not allocated to the most congested cities

to minimize the cost of delays ($13.8 billion)
The cost of investments in airport

runway capacity and air traffic
control teclmology is increased by
delays in project completion
Regulations and mismanagement increase the costs

of runway and air traffic control investments (nla)
The allocation of funds for airports

and air traffic control is inefficient
Funds are not allocated to the most congested

airports (ATC facilities $1.1 billionh; airports nla)
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Inefficiencies from the Public Provision of Infrastructure and Urban Transit
22
6
Urban transit requires excessive

subsidies
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InYestments do not satisfy a cost-benefit test (n/a)
Fares are set below marginal cost and frequencies

are excessive ($10.6 billion)
"Buy American" regulations; Capital subsidies:
Restrictions on releasing employees
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Anny Corps' of Engineers waterway

investments are inefficient
23
Chairman ISSA. Thank you, Dr. Winston.
Dr. Calabria.
STATEMENT OF MARK A. CALABRIA
Mr. CALABRIA. Chairman Issa, Ranking Member Cummings, and

distinguished members of the committee, I thank you for the invitation to appear at todays hearing. Let me first commend the
chairman for calling todays hearing. All too often in Washington
I think we can sometimes get lost in the details of policy and forget
some of the basic principles, so I do think that todays hearing offers us that opportunity.
Academics and practitioners have long recognized that governmental action faces a number of institutional limitations. I want to
be very clear that these limitations dont change with the party in
control, they dont change with the personalities and competencies
of political appointees. Certainly, I think anybody could look at, for
instance, the response to Hurricane Katrina or the initial rollout of
the Iraq war and say that these things did not go smoothly. This
is not an issue of party. And, of course, these considerations should
always be taken into account, and I think we always should keep
in mind that while Government is capable of great good, it is also
capable of great harm.
I would also say that, unfortunately, it seems to be often the attitude in Washington is we must do something and leaving that option to the private sector should always be something that should
be considered.
I also want to be very clear at the beginning of my comments
that nothing I say is meant to imply that markets are perfect.
Quite frankly, I dont know of any human institution that is not
flawed to some degree, so it is always a choice of flawed institutions. I will note, however, that, to me, the first limitation that
Government lacks is the powerful feedback mechanisms we find in
the marketplace. Private businesses can rely on a small number of
signals, such as sales volume, prices, to determine their success. By
contrast, Government programs can spend millions, even billions
without any clear signal of success or failure. For instance, few of
us would debate whether the iPod or the iPhone has been a success. I think we could all agree on that. But economists continue
to debate whether the New Deal actually ended the Great Depression or not, and economists debate whether the 2009 stimulus created jobs or not.
In some degree, these are inherent in the nature of these programs. Certainly, Government programs, social issues have far
greater number of causes and, therefore, do make it harder to access. That said, given that all action, public or private, is made in
an environment of uncertainty, I do think that the market allows
for a greater level of experimentation that reduces that uncertainty
in a more timely basis.
Veronique touched upon even if we did know the right solution
ahead of time, which, in my opinion, is a big if, there is a whole
bunch of different incentives that Government actors face that
might mean they might not even pursue the right incentive. For instance, as mentioned, compensation of Government employees is
rarely tied to performance. One doesnt get paid more for success,
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nor does one get punished for failure. Equally important is the fact
that few Government employees suffer in the face of failure. You
can look at the area that I look in, financial regulation. I think it
is beyond question that various bank regulators failed to do their
jobs during the financial crisis. I would go as far as to say there
was probably no bigger regulatory failure than at the New York
Federal Reserve Bank. But its president at that time, Tim
Geithner, rather than being punished, was given a promotion for
his performance.
Again, I would be the first to say that the private sector has
more than its share of problems, but it is hard to think of any firm
or industry that has the Federal Governments track record of rewarding failure.
I need not remind members of the political considerations that
often come in mind. Veronique touched upon those. You certainly
are very aware of those; you deal with those every day, so I will
just skip past those. I will say one of the problems often that we
see in Government is conflicting objectives. In general, private
businesses have a clear-set measurable objectives; in contrast, Government programs often result in attempts to make numerous parties happy, with the outcome that no party ends up being happy.
And while numerous objectives might seem like an benefit, I think
it leaves Government programs without a clearer mandate and
makes those programs less accountable to both Congress and to the
public.
I would say that one of the contrasts between, as the ranking
member mentioned, something like Social Security and the current
healthcare is Social Security has a fairly clear objective: to raise elderly people out of poverty. You can measure that; you can determine it; you can see whether it is working or not. When you have
programs that have multiple objectives, it is far harder to figure
out whether those objectives are being met or not.
Let me spend my last few seconds talking about some of my examples from banking regulation, which is my area of expertise, not
healthcare. But I do think we need to worry about any time an insurance program where you provide a Government guarantee, are
you minimizing the incentive of parties to make responsible
choices? We call this moral hazard in the economics literature. But
certainly bailing out banks encourages them to make bad decisions;
you keep the same banks around. For instance, I am sad to say
that I dont think is the last time we bail out Citibank. We will
probably bail them out a few more times because we continue to
keep them around.
So, again, it is important to keep in mind that failure has to be
an important component of the learning process. And just like in
the private sector, you need to let firms that dont actually do a
very good job go away, you need to let programs that dont do a
very good job in the government sector go away so that you can
focus on those programs that actually do a good job.
Thank you.
[Prepared statement of Mr. Calabria follows:]
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Testimony of Mark A. Calabria, Ph.D.
Director, Financial Regulation Studies, Cato Institute
Before the
U.S. House Committee on Oversight and Government Reform
On "Institutional limitations on the efficacy of government"

Wednesday, December 3, 2013 9:30 AM
2154 Rayburn HOB
Mark A. Calabria, Ph.D. is Director of Financial Regulation Studies at the Cato Institute. Before joining Cato in
2009, he spent seven years as a member of the senior professional staff of the U.S. Senate Committee on Banking,
Housing and Urban Affairs. Prior to his service on Capitol Hill, Calabria served as Deputy Assistsnt Secretary for
Regulatory Affairs at the U.S. Department of Housing and Urban Development, and also held a variety of positions
at Harvard University'S Joint Center for Housing Studies, the National Association of Home Bnilders and the
National Association of Realtors. He has also been a Research Associate with the U.S. Census Bureau's Center for
Economic Studies. He holds a doctorate in economics from George Mason University.
httn:llwww.cato.org/oeople/mark-calabria
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Hearing entitled "Institutional limitations on the efficacy of government"
Wednesday, December 3,2013 9:30 AM in 2154 Rayburn HOB
United States House of Representatives
Chainnan Issa, Ranking Member Cummings, and distinguished members of the

Committee, I thank you for the invitation to appear at today's important hearing. I
am Mark Calabria, Director of Financial Regulation Studies at the Cato Institute, a
nonprofit, non-partisan public policy research institute located here in Washington,
DC. Before I begin my testimony, I would like to make clear that my comments
are solely my own and do not represent any official policy positions of the Cato
Institute. In addition, outside of my interest as a citizen and taxpayer, I have no
direct financial interest in the subject matter before the Committee today, nor do I
represent any entities that do.
Need for hearing

Let me first commend the Committee for calling today's important hearing.
It is commonly the case in Washington that policy-makers spend their time almost
exclusively focused on narrow technical or political questions. The starting
assumption is always "something must be done" rather than "can government
actually solve the problem at hand". I view this hearing as an important
opportunity to remind members that government faces several inherent institutional
limitations. These limitations do not change with the party in control or
personalities and competencies of political appointees. These limitations should
always be considered before governmental action is taken. As we have repeatedly
learned the hard way, government can do substantial harm. Doing nothing should
always be an option, or rather leaving the problem to be solved by the voluntary
private sector.
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After beginning with a very brief overview of some of the general
institutional limitations of government, I will spend the bulk of my testimony
focusing on that area with which I am most familiar: financial regulation. The
following institutional limitations of government are well and long recognized in
the economics and political science literature. As general observations and
descriptions of government, they are widely accepted among scholars, even if the
degree of their importance is open to debate. Nothing in the below is meant to
imply that markets are "perfect" - the choice is always among various flawed
human institutions.
Limitations of Government: Lack of knowledge

All action, whether public or private, takes place in an environment of
nncertainty. Just as a firm does not know ahead of time how much it can sell and
at what price, we do not know ex ante whether government programs will achieve
their objectives and if they will do so at a reasonable cost. Firms, however, can
learn quickly via market signals. If excess goods remain on the shelf, this suggests
prices may be too high. It can also suggest consumers are not interested in the
product in question. Either way firms can engage in a repetitive interaction with
consumers that usually yields important insights as to which behaviors the frrm
should pursue.
As many government services are not priced, or are provided by monopoly,
government lacks this important feedback mechanism. Almost any free service
will generate a queue. In Washington, government programs are often judged on
their spending levels. Yet spending levels are an input, not an output. Spending
millions (or billions or trillions) on a particular problem gives us almost no insight
into whether the problem has been alleviated. Businesses can also learn by failure.
If there is no consumer interest in a business' services, that business will not last
long. Yet as we've repeatedly witnessed government programs can continue for
decades regardless of their success or failure.
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Limitations of Government: Missing or Perverse Incentives
Government programs can also be undermined by the incentives facing
government employees. At one extreme, if government employees value their jobs
then they actually face an incentive not to solve the problem they have been tasked
with. In fact they have an incentive to allow the problem to grow worse, as such
would offer a justification for ever larger budgets and power. That said I do
believe most federal employees try in earnest to solve the problems they are tasked
with addressing. I also believe, however, that since most federal employees see
their compensation having little, if any, relationship to solving the social problem
in question, federal employees face fairly weak incentives relative to employees of
private businesses.
There is also little incentive to avoid failure among federal employees.
Whereas the employees of Lehman Brothers were rightly punished for the failure
of their frrm, no federal bank regulators have lost their jobs due to the numerous
regulatory failings that contributed to the financial crisis. The same holds for
companies such as Fannie Mae. Despite its massive failure and rescue, the
employees of Fannie Mae were not fired and still enjoy compensation levels in
excess of federal employees and most private sector workers. Failure is a vital
method oflearning in the private sector. Public policy problems are often
approached as if simple "engineering" problems; whereas the reality is that the
most effective way to do anything, whether public or private, is likely unknown at
first. We learn via trial and error. Where failure is suppressed, learning is blunted.
While the issue of "learning" is a critical product of failure, there are also
important incentive effects. For too many government employees, misconduct is
overlooked and rarely punished. For instance in the recent and continuing stories
on NSA spying, to my knowledge, no NSA employee has been disciplined. It is
also quite rare to see law enforcement officers held accountable for violations of
citizens' basic civil liberties.
The importance of incentives is merely to state the obvious, that when doing
something is costly, most people will do less of that action. When doing
something is rewarded, most people will do more of that action. This fact has
nothing to do with the morality, honesty or laziness ofthe person in question. One
of the worst errors repeatedly made in Washington is to simply assume that if we
have the "right" people in government, then good things will happen. All people
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respond in varying degrees to incentives. While there is a case to' be made about
the characteristics of persons attracted to government, the powerful incentives
facing governmental actors will swamp those personal characteristics.
Limitations of Government: Political Pressures
I need not remind members that political considerations can often trump
policy considerations. Even if we can get the incentives correct and figure out the
appropriate policy response, the political support may well be lacking for the
policy in question. Just as businesses and government do not know the "right"
answers ahead of time, nor does the public. Few members of the public have the
time or incentive to become experts on public policy issues. What the public is
likely to support or oppose is just as likely to be driven by emotion and
misinformation as it is by informed debate and deliberation.
Those who do have a strong incentive to learn the details of a particular
public policy are those likely to be highly impacted. I need not remind members
that on any particular policy issue they are more likely to receive information from
interested, but biased, parties than from those that are disinterested but objective.
An argument can certainly be made that the political process can yield
results that mirror what is socially optimal. There is however a long literature in
both economics and political science suggesting that this is unlikely to be the case
in most instances. I would argue that anyone even remotely familiar with
Washington knows that outcomes rarely match what anyone would envision as
socially optimal.
Limitations of Government: Conflicting Objectives
Private firms are generally guided by a small number of objectively

verifiable standards. For publicly traded companies this includes stock price. All
private firms would engage in measurements of profit and loss. Measures of profit
and loss would also serve as proxies for important objectives such as consumer
satisfaction or loyalty. While one can of course debate both the accuracy and
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adequacy of these measures, the point is that they are measumble and give private
firms a clear direction of objectives.
In the case of government, conflicting objectives can leave program
managers without any clear direction. Trying to achieve conflicting objectives can
leave federal employees short of achieving either. Conflicting objectives also
reduces government accountability. Failure to achieve one objective can always be
attributed to attempts to achieve other objectives. Of course in too many instances
government programs fail to achieve any of their stated objectives.
What should be our default?

As mentioned the starting assumption in Washington is almost always that
government "must do something". As governmental action is always based upon
coercion or the threat of coercion, and market interactions are generally based upon
voluntary mutual cooperation, I believe that if we as a society wish to minimize the
use of coercion, our default setting should be to prefer private sector solutions over
public, in the absence of strong, compelling evidence otherwise.
Government versus Market Regulation of Financial Markets

In what follows I will apply the above, particularly the importance of
incentives, to the area of [mancial market regulation. Let me start off with an
important clarification. I will not be making the case for self-regulation. That's a
strow-man, at best. No individual, whether a bank CEO, regulator or the President
is capable of serving as a judge of their own actions. Unconstrained power
generally ends badly.
What I will be making the case for is the regulation of financial companies
by other market participants, as opposed to regulation by government. I will also
address why the mixed option of both government and market regulation is
actually worse than relying on either exclusively government or market-based
regulation.
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Before we move to the real world, let us begin with a simplified version. In
free-market for banking services, the leverage and risk-taking of anyone bank is
limited by its cost of funds. The more highly leveraged, the mismanaged, or even
the more fraudulently managed a bank, the higher the rate at which creditors
charge to lend to said bank.
Keep in mind that cost of funding is the most crucial element of finance. The
difference of even a few basis points can drive market structure, determining which
firms survive and which fail. For those misbehaving firms that face a higher cost
of funds, their growth and activities will be limited by this higher cost of funds.
Of course a higher cost of funds is only one element of market discipline.
When creditors have substantial funds at risk in anyone institution, they face a
strong incentive to monitor and intervene in the management of said institution.
Quite simply in a world where creditors have their own money on the line, they
impose discipline; that is they regulate bank behavior. This is not simply a
theoretical curiosity. One ofthe most robust empirical fmdings in fmancial
research is the existence of market discipline when creditors are at risk. Another
empirical regularity is the lack of market discipline where creditors are protected
by government. This is the moral hazard created by government guarantees.
Of course creditors, as well as management, misjudge or make mistakes.
Markets are not perfect. But then neither are governments. What makes the market
superior at error correction are much stronger incentives facing market
participants, as opposed to regulators. Creditors who have lent a bank millions, or
billions, have a lot on the line. Regulators, who rarely lose their job because of a
financial crisis, have little on the line.
In fact the problem facing regulators is not only weak incentives, but also
perverse incentives. As an asset bubble builds, for instance, the broader public and
their elected representatives, will pressUre regulators not to interfere with the
instant wealth creating machine that bubbles appear to be. My own experience, as
staff on the Senate Banking Committee, during the growing housing bubble was a
chorus of groups and individuals lauding the great wealth creation machine of
homeownership. Democracy loves a bubble and whoa the regulator to dares to
stand in front of one.
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Regulators may also feel that speaking out against a bubble would
undermine the confidence pushing said bubble. If confidence did evaporate, and
the bubble burst, the regulator would be blamed. This was certainly the lesson the
Fed took away from trying to pop the 1920s equities bubble. It is far easier to
simply let the bubble build and move in afterwards to clean up the mess. This
continues to be the policy ofthe Fed. Sadly this also reinforces bad behavior.
When regulators come in during a crisis and protect failing firms they stop
the market process of eliminating bad behavior. As you are aware, Citibank has,
for instance, been rescued four times now. Those rescues have guaranteed that its
broken corporate culture will continue to infect our financial markets. Just as
nature evolves, so do markets, in the absence of government keeping failed firms
in existence.
This again speaks to the incentives facing regulators. While they will not
lose their jobs because of a bank failure, they do suffer embarrassment and may
even be over-looked for promotion. They incentive facing regulators is to either
allow those firms to grow their way out of their problems or else to use taxpayer
funds for a rescue of said bank.
Recent studies have found, for instance, that short-sellers, in the aggregate,
identify more corporate fraud than does the SEC. Recall that such failed frrms as
Enron, Fannie Mae, Countrywide, WorldCom and others, were all identified as
engaging in misbehavior first by market participants, not regulators.
If anything regulators have been repeatedly rewarded in the aftermath of
financial crises by even more power. Probably no institution failed more in
responsibilities than the Federal Reserve, yet Dodd-Frank extended the power of
the Federal Reserve. If anything, the incentives facing banking regulators are to
reward them after a crisis rather than punish them.
Regulators quest for stability and avoiding frrm failure has lead regulators to
repeatedly restrict competition, protecting incumbent firms and allowing such
firms to retain monopoly profits. Today for a new bank to open it must receive
approval from regulators and one of the factors which regulators use to approve or
disapproval new charters is the competitive impact on incumbents.
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The logic is that giving banks some monopoly power encourages them to be
more risk-averse and to protect their franchise value. This logic is not without
some basis in reality. However the cost of this protection is both higher costs for
consumers and the protection of bad business practices that would otherwise be
eliminated by competition.
Even when regulators aren't intentionally trying to reduce competition,
regulatory barriers can have that impact, often causing tremendous harm. Take for
instance the regulation of mortgage brokers, one group associated the financial
crisis. Professor Morris Kleiner, at the Humphrey School of Public Affairs of the
University of Minnesota, has found that leading up the mortgage crisis, the more
stringent was a state's regulation of mortgage brokers, the higher was the rate of
mortgage defaults. The lesson here is that regulation, rather than protecting the
public good, creates market power, which reduces the effort of incumbent firms.
We have witnessed similar results in the federal regulation of credit rating
agencies.
Financial regulation is often justified because it is claimed that banks are
inherently unstable. Nothing could be further from the truth. The foundation of our
federal system of banking regulation, created in the progressive and New Deal
periods was a reaction to widespread failures among small banks. The reason for
such failures was the restrictions imposed on bank branching by states. Such
restrictions reduced both geographic and scale diversification by banks. As
recently as the 1990s some states continue to restrict banks to a single location.
Obviously that makes said bank highly vulnerable to local economic conditions.
Countries without such restrictions have fared better during times of
economic distress. For instance Canada, which suffered a similar decline in GDP
during the Great Depression, did not witness one bank failure during that time, and
that is despite not having a central bank or deposit insurance at that time. What it
did have was a geographically diversified banking system. This is not result is not
limited to Canada. Empirical studies of the period support these results across
countries. More recent studies from both the IMF and World Bank also find that
the more extensive a country's bank safety net, the more frequent and severe are its
fmancial crises.
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What we have essentially created in the US is a system of local monopolies,
insulated from competition. That would be bad enough if it were not also
impossible for politicians to resist redistributing those monopoly profits to favor
constituencies, ultimately resulting in financial failures driven by politics, not
economics. This is one reason why a mixed system is more unstable. Government
cannot resist the temptation to redistribute the monopoly rents created by the
barriers to entry it imposes.
Another reason is, as I've mentioned, the regulators incentive to cover up
their own mistakes via bailouts reduces market discipline. If creditors know
regulators will not allow Citibank to fail, then creditors will reduce their
monitoring and disciplining of Citibank. This also creates the perverse incentive
for banks to become larger and more complex in order to be perceived as Too-BigTo-Fail.
The last hundred years of banking regulation has been a continued trend of
replacing market discipline with regulation. The result has been more bank
failures, not less. This year marks the lOOth anniversary of the Fed. We have had
over twice as many bank failures in the last 100 years than we did in the lOO before
the creation of the Fed. This result holds even once you control for number of
banks. Even President Obama's first CEA director, Christina Romer, has found
that the economy since the Fed has been no more stable than before its founding.
We also witnessed those states with their own deposit insurance schemes having
higher bank failures during the Great Depression.
In the absences of government provided safety nets, banks and their

creditors would take off-setting precautions. We witness similar behavior in the
hedge fund industry, where the typical hedge fund is leveraged two to one, whereas
the typical bank is leveraged ten to one. Of course bank leverage was not so high
before the creation of the federal bank safety net. In fact the closer you are to
politics, the more highly leveraged an institution becomes. Freddie Mac's credit
guarantee business was leveraged over 200 to 1 during the crisis. In the absence of
an implied government guarantee, no company would be allowed by creditors to
become so highly leveraged.
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35
One of the rationales given for bank regulation is the possibility of
contagion. That is having troubles at one bank spread to another. Let me be crystal
clear. There is not one example in US banking history of a healthy, solvent bank
failing due to a run. Contagion failures are the unicorns of finance. It's badly
managoo & insolvent banks that fail and they do not bring others down with them.
Bad policy and macroeconomic disturbances can also create bank failures.
The highest year ever for bank failures, 1933 where over 4,000 banks failed, was a
direct result of President Roosevelt's move to take the US off the gold standard.
Like depositors in Greece today, depositors in 1933 did not wish to see their
currency devalued. Recall the FDIC was created under the Banking Act of 1933,
signed in June. Bank failures continued throughout that year. The FDIC was
created to keep poorly run and undiversified small banks in business. As FDR, who
opposed creation of the FDIC, recognized, this would create more failures not less.
I've mentioned that banks can fail in mass due to a common shock, such as
currency devaluation or bursting real estate bubble. One characteristic of a stable
financial system is one where the probably of failure across institutions is not
highly correlated. Quite simply you want a diversity of balance sheets and business
models. Regulation has generally pushed for uniformity.
Regulating all the banks, or financial institutions, the same will increase the
likelihood they all fail in mass, as they will respond similarly to the same shocks,
such as real estate bubbles. Given the appropriate due process and rule oflaw
considerations, I believe US banking regulation will always push for a high degree
of uniformity, ultimately turning what would be small shocks into systemic ones.
I've also set aside the question of whether regulators or politicians even
know the correct regulatory scheme to implement. Of course no one knows this ex
ante. One of the great advantages of markets is their superior ability to create
knowledge, because they can coordinate the thinking and opinions of millions of
individuals. Given the slowness of regulators to even recognize problems in the
housing market, regulators clearly face severe knowledge problems, even assuming
they faced appropriate incentives.
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36
Broader lessons
This hearing is occuning in the aftennath of an unsuccessful roll-out of
health care refonn. While I am not an expert in health care, I believe the preceding
offers a few lessons for the structuring of government programs.
First we should always ask whether government should be involved in the
particular area. We should also ask ourselves what exactly is the problem we are
trying to solve and what is the primary driver of the problem. For instance if the
problem is that some people cannot afford a particular good, which we deem to be
essential, then the most direct solution is a direct transfer of funds. The evidence is
overwhelming that the market can provide health care, housing, education or any
number of goods. The problem facing many households is that lack the income to
purchase those goods and services. This is not a market failure.
The most important lesson is to get the incentives correct. Failure must be
punished and success rewarded. That is only possible if failure and success can be
readily observed. Outcomes should be measurable, observable, verifiable and
should relate directly to the policy question at hand. Conflicting objectives should
be avoided. For instance expanding access to health care, that is increasing
demand, is in direct conflict with reducing costs.
As government lacks the feedback mechanisms of market institutions,
additional checks and balances should be implemented. This is often achieved via
requirements under the Administrative Procedures Act, but those requirements
have often been ignored or eroded. Feedback mechanisms can sometimes be
reproduced by the use of competition among agencies or service providers. Avoid
monopolies. Also avoid government guarantees that result in moral hazard, that is
increased risk-taking by individuals because they are not insured against the
adverse outcomes of their own actions.
Let me close with a reminder. Analysis must be based upon the actual
imperfect workings of real world markets. But analysis must also be grounded
upon the actual imperfect workings of government. Identifyi\lg market failures is
the beginning of analysis, not the end. Thank you.
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37
Dr. Thomas.
STATEMENT OF KAREN KRUSE THOMAS
Ms. THOMAS. Chairman Issa, thank you for the opportunity to

testify today regarding the past accomplishments and future potential of Federal intervention in healthcare.
Chairman Issa, during your opening remarks you said that
healthcare has always been in the private sector and should be. I
would respectfully disagree. Healthcare is one of the most heavily
subsidized by government areas of the economy, and if we want to
look at a time when healthcare was still largely in the private sector, we would need to go back to pre-1935, and it is a disturbing
picture.
Critics of Federal intervention in healthcare, including my fellow
panelists, see intervention as interference, and they see the
healthcare industry as a group of private actors, health professionals, hospitals, insurance companies, drug manufacturers, and
these private actors, would according to them, if left to their own
unregulated devices, do a far better job of providing the American
people with broad access to quality healthcare. Let the market do
its work, they say.
But these criticisms rely on sharp distinctions between the public
and private sector, and they misapply the same basic economic
principles to all types of markets, whether the product is houses,
handbags, or heart surgery. And I can only notice that each of my
panelists are economists, and no one has really talked about how
the healthcare market operates specifically, so I will try to do that.
Of all the industries that make up the American economy,
healthcare most defies the classic model of the private market.
Physicians are the quintessential small business owners, and they
have traditionally fiercely defended fee-for-service practice as the
best system for guarding their patients health.
Yet, without publicly funded medical education, research, service
delivery systems, and other Government-sponsored aspects of medical care, the medical profession would still be the small and struggling band of individualists who began the twentieth century with
little scientific understanding of how disease spread, much less how
to cure it.
I think one of the best examples of the dollar-for-dollar value of
Government investments in medical research were the wartime
trials of antimalarial drugs and penicillin. Penicillin was brought
to you by the Federal Government, essentially. And I should be
very specific to say that the Federal Government has not interfered
with the private market so much as it has coordinated many public
and private actors.
So in the development of synthetic antimalarial drugs that were
very important for protecting the lives of U.S. military personnel,
the malaria research program proved to be the largest biomedical
undertaking to date, at that time, and it also became the model for
post-war scientific medical research that both private and Government research agencies adopted after the war. And that model
marshaled the resources of academia, Government, and private industry together to produce things like cortisone and a variety of
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38
other drugs that we now take for granted and many of us use on
a regular basis.
So from 1942 to 1946, the Office for the Survey of Antimalarial
Drugs conducted tests on birds and yielded precise pharmacological
and toxicological data on 14,000 drugs, roughly 10 a day for four
years. And the private sector, at that time, simply was not capable
of coordinating such a massive effort, and the survey decisively
identified a drug called chloroquine as the drug of choice against
malaria.
So with my remaining time, the NIH I think is certainly one of
the most successful examples of Federal sponsorship of medicine,
but Medicare and Medicaid now function as much to preserve the
financial status of middle class Americans as to enable the poor to
purchase healthcare. So, really, those programs have operated to
support the private market in healthcare as much as to undermine
it. And I will conclude with that.
[Prepared statement of Ms. Thomas follows:]
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39
Why Federal Intervention in Health Care Works: A Historical Perspective
Testimony before the House Oversight and Government Reform Committee
December 4, 2013
Karen Kruse Thomas, Ph.D.
Historian, Johns Hopkins Bloomberg School of Public Health
Chairman Issa, Ranking Member Cummings, thank you for the opportunity to testify
today regarding the past accomplishments and future potential of federal intervention in health
care.
In 1900, a newborn American citizen had an average life expectancy of 47 years. A
heartbreaking 10 percent of all infants died before their first birthday, and Infant mortality was
far higher among the rural and urban poor, whether on southern farms or In northern
tenements. By contrast, an American born in 2000 could expect to live 75 years, and infant
deaths had been cut by 93 percent. 1
These striking reductions in morbidity and mortality rates resulted from not only a rising
standard of Ilving, but also the advent of effective methods for detecting, preventing, and
treating disease; new breakthroughs in medical research; and markedly improved access to
health facilities and services.
In all these areas of medical and public health progress, the Federal government has
played a fundamental role as both sponsor and coordinator of a remarkably concerted effort
involving communities, states, organizations, and institutions across American society. The
Federal government therefore deserves a great deal of credit for .doubling life expectancy for
Americans, as well as for tackling a long and ever-changing list of problems regarded as the
worst enemies of the nation's health, from tuberculosis and polio to cancer and AIDS.
Yet most critics of federal intervention in health care, particularly critics of the
Affordable Care Act, define "Intervention" as "interference." They see the health care Industry
as a group of private actors-health professionals, hospitals, insurance companies, drug
manufacturers, etc. These private actors would, If left to their own unregulated devices,
supposedly do a far better job of providing the American people with broad access. to quality
health services than a bunch of bumbling bureaucrats and speciai-interest politicians. These
criticisms rely on sharp distinctions between the public and private sector, and misapply the
same basic economic principles to all types of markets, whether the product is houses,
handbags, or heart surgery.
Of ali the industries that make up the American economy, health care most defies the
classic model of the private market. Physicians are qulntessentiai small business-owners who
traditionally have fierceiy defended fee-for-service practice as the best system for guarding
their patients' health. Vet without publicly-funded medical education, research, and servicedelivery systems, the medical profession would stili be the small and straggling band of
individualists who began the twentieth century with little scientific understanding of how
disease spread, much less how to cure It.
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The ideas presented in this document do not represent official positions of the Bloomberg School of Public
Health or Johns Hopkins University.
40
2
You cannot sell what people are terrified to buy, and until at least the early 20th
century, most American hospitals were charitable institutions where poor people with no
family went to die. Paying patients came only after the introduction of anesthesia in childbirth
and the first effective medical and surgical treatments for disease. Yet many aspects of health
care remained patently unprofitable, particularly for patients with chronic disabilities. For
example, by 1950, over half a million Americans were institutionalized in state mental hospitals.
The conditions that responded least effectively to profit-driven medicine were ironically those
generated by the highly lucrative markets for cigarettes, alcohol, and illegal drugs. In the 1960s
and 1970s, drug addiction and alcoholism reached epidemic proportions. Rates of lung cancer
rose steadily throughout what has been called "the cigarette century," increasing five-fold in
males from 1930 to 1990 and continuing to rise in women. 2
The Federal government has responded to every major public health problem with
legislation and the expertise of agencies such as the Food and Drug Administration, U.S. Public
Health Service, Natlonallnstitutes of Health, and Centers for Disease Control. Government
health agencies have worked closely with the so-called private health sector, both for-profit
and non-profit, to bring more consumers into the health marketplace while promoting cost
savings and coordinating resources, which remains the primary goal of the Affordable Care Act.
For example, public health departments and private physicians cooperated to make
mass screening and immunization programs standard for American children--and a pillar of
pediatric private practice.3 By 1920, public health departments in large northern clties provided
services including sanitation, communicable disease control, matemal and child health, health
education, laboratory tests, and collection of vital statistics. But doctors, hospitals, and public
health services were scarce or absent in much of the rural South and West. 4 Federal initiatives
helped democratize advances in medicine and public health so that they reached areas of the
country with the greatest need. The greatest beneficiary was the South, historically America's
most anti-federal region.
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A NEW DEAL FOR AM ERICAN HEALTH

_ During the 19305 and 1940s, the federal government assumed the lead In all publ1c
health efforts as national and international crises exhausted private sector resources and
fostered public-private cooperation to address a new wave of health problems besieging the
nation. The Great Depression had a catastrophic Impact on the health of Americans who could
no longer afford medical care or even adequate diets. Rising levels of unemployment and
poverty began to erase the recent gains In health status, particularly among those hit hardest
and earliest In the agricultural sector. Between 1925 and 1935, death rates rose from pellagra,
pneumonia/Influenza, malaria, meningitiS, and measles.s
New Deal public works programs constructed thousands of miles of water and sewer
lines and built new treatment plants at a time when cheap labor was available but local
governments could not afford to make improvements. Works Progress Administration (WPA)
sanitation projects drastically reduced the Incidence of typhoid and dysentery in rural
communities, which were also the primary beneficiaries of PHS and WPA malaria control
programs. To curtail mosquito breeding, the WPA drained several million acres of swamp and
PHS officers sprayed mosquito-ridden areas with larvacides from airplanes and on foot. The
incidence of waterborne illnesses dropped steadily, and the national typhoid mortality rate
41
3
decreased by 90 percent from 1920 to 1945. These programs made vast areas of the South safe
for business and contributed significantly to the rise of the booming Sun belt economy.6
The 1935 Social Security Act is known primarily as a retirement program, but Titles V
and VI aided maternal and child hea1th and helped support health departments by providing
matching grants to stimulate state and local spending. During the Franklin Roosevelt
administration, policymakers increasingly relied on public health programs as a versatile tool to
solve a wide range of problems, from reducing rates of loan defaults among farm families
(commonly caused by health crises that left farmers unable to work) to ensuring the maximum
productivity of defense industry workers and rehabilitating soldiers who had been rejected for
military service?
By the late 19305, New Deal reformers were eager to enact legislation to create a
national system of financing health care for all who needed it. The framers of the Social Security
Act had considered including health insurance as a benefit, but President Roosevelt had
opposed the Idea as too controversial.
Many reform groups, however, including organized labor, farmers, civic organizations,
and philanthropies, grew more vocal In their calls for federal action to promote broader access
to medical and hospital care. Senator Robert Wagner of New York introduced the first
comprehensive national health legislation In 1939, and the Wagner-Murray-Dingell National
Health Bill, Introduced in 1943, was the first proposal for universal health insurance coverage
underwritten by the federal government. But the American Medical Association attacked
national health Insurance as "socialIzed medicine" that would interfere with the sacred
relationship between doctor and patient and result In lower standards of care. B
Nonetheless, still-un met health needs and the success of New Deal public health efforts
prompted many doctors to acknowledge, along with North Carolina's state health officer, carl
V. Reynolds, "the government has a definite responsibility in tbe prevention and cure of disease
and the preservation of health."s
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WORLD WAR II AND THE HEALTH FRONT

The appeal of national health legislation surged after the attack on Pearl Harbor. Rising
employment as well as wartime shortages of health professionals increased public demand for
health care, the aspect of social policy (along with labor) most critical to national defense.
When newspaper headlines announced high rates of draft rejections for various health reasons,
national leaders recognized that serious existing health deficiencies threatened America's
fighting effectiveness and economic productivity. Draft rejection statistics also revealed that
illness and disability disproportionately affected southerners, rural reSidents, and African
Americans, which further fueled the drive for health reform targeted at these groups.
The numbers were sobering: at least 40 percent of the 22 million men of military age
were unfit for general military duty, and 4.5 million of these were classified as "IV-F," inciuding
half of southern recruits versus only one-third of non-southerners. In North Carolina, which
posted the highest rejection rate, 71 percent of black and 49 percent of white recruits were
deemed unfit for service.1o
The wartime drive to pass federal health legislation also fueled civil rights activism.
During an era of hostility to any civil rights measures and strict segregation of the private health
system North and South, Congressional hearings on the national health legislation of the 1940s
42
4
gave representatives of every major national black organization an alternative forum to
promote equality and the full inclusion of blacks in federally-sponsored health programs.
The medical civil rights movement succeeded in enacting federally enforced nondiscrimination provisions that ensured that black. patients could receive equal care in public
health clinics and modern new hospitals that accepted federal grants, although southern
facilities maintained racial separation by ward or floor. Federal support for training programs
such as the Army Cadet Nurse Corps and medical residencies in Veterans Administration
Hospitals increased the ranks of health professionals while also offering equal opportunity to
Americans of all races and religions. 1l As Surgeon General Thomas Parran put it, "[e]very
citizen, North and South, colored and white, rich and poor, has an inalienable right to his
citizen's share of health protection."
To develop solutions to high-priority health problems of military importance, the PHS
and the Armed Forces Epidemiological Board took responsibility for protecting the heaith of
American troops through measures such as venereal disease and malaria control, tropical
disease research, and mental hygiene programs to prevent and treat combat-related disorders.
Parran's mobilization of the PHS for the war effort was master strategic stroke that framed
health reform as an urgent matter of national defense and garnered unprecedented federal
funding for broad-b~sed programs to support public health and sanitation services, medical
research, and hospital construction. Wartime federai spending rose to ten times that for
l2
peacetime New Deal programs, and health was among the top beneficiarles.
Dollar for dollar, two of the most valuable investments of federal funding for medical
research were the wartime trials of antimalarial drugs and the determination of effective
regimens for treating syphilis with penicillin.
The development of synthetic antimalarial drugs was a top priority for the U.S. military,
particularly after the supply of quinine was cut off in 1942 by the Japanese offensive in
Southeast Asia. The malaria research program proved to be the largest biomedical undertaking
to date and it became a model for postwar scientific medIcal research that marshaled the
resources of academia, government; and private industry. From 1942 to 1946, the Office for the
Survey of Antimalarial Drugs conducted tests on ducklings and yielded precise pharmacological
and toxicological data on over 14,000 drugs, roughly ten a day for four years. The survey
13
decisively identified cloroqulne as the drug of choice against malaria.
Along with malaria, syphilis was the disease that posed the gre;ltest threat to the
fighting effectiveness of American soldiers. Before methods to mass-produce penicillin were
perfected In 1943, the standard treatment regimen for syphilis was long, complicated, and
relied on potentially toxic arsenic and mercury compounds. Private physlc!ans struggled to
master the skills necessary to inject patients with the right combination of drugs to kill the
spirochetes but not the patient. The PHS Venereal Disease Clinic at Hot Springs, Arkansas
developed a new, more efficient method of administering intravenous drug therapy for syphilis
and gonorrhea to large numbers of in-patients with a minimum number of personnel.
With ample federal funds from the Social Security Act and the 1938 National Venereal
Disease Control Act, the number of venereal disease rapid treatment centers had tripled to
more than 2,400 by the end of 1939, with 9 million treatments given annually to over 100,000
patients. New syphilis cases declined by over half from 1936 to 1939, and infant deaths from
congenital syphilis were halved.14
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43
5
[It should be acknowledged that during this period, the PHS was conducting the longest
nontherapeutic medical study in U.S. history, the Tuskegee Study of Untreated Syphilis in the
Negro Male, which was grounded in assumptions that reflected the pervasive scientific racism
among white medical professionals of the era. lSI
During the war, the federal Office of Scientific Research and Development's cooperative
clinical trials of penicillin to treat early-stage syphilis demonstrated that peniCillin could
drastically shorten the length of treatment to only ten days for syphilis patients and three days
for gonorrhea cases, with some requiring only a single Injection. Using the penicillin studies as a
guide, the Public Health Service also used randomized controls to evaluate streptomycin in
treating tuberculosis.
The PHS energetically promoted VD screening, prevention, and education programs for
military and civilian populations, with special attention to military bases and defense
production areas. As the country celebrated victory and prepared for demobilization, the PHS
announced that rates of venereal disease among civilians had not markedly increased during
wartime, as they had in every previous conflict. 16
After the war, Congress authorized the highest funding levels yet to continue treating
VD patients in rapid treatment centers and hospitals, which reduced venereal disease rates to
such low figures in the cMlian as well as military populations that most rapid treatment centers
had closed by the early 19505.17
But venereal disease became a cautionary tale that demonstrated the danger of
declaring victory too soon: after the reduction of federal venereal disease control expenditures
during the 19505, rates of syphilis and gonorrhea resurged to epidemic proportions during the
19605 and 19705, and by 1980, an estimated 20 million Americans had contracted genital
herpes. l8
Federally funded and orchestrated wartime research yielded therapeutic compounds to
prevent and cure three of the top killers of an time, malaria, syphilis, and tuberculosis. More
than Just fighting specific diseases, these efforts made fundamental contributions to the
development of basic medical research methodology.
for the modem pharmacopeia from which nearly every American has benefited, we can
thank the federally sponsored model of research and development provided by the intensive
laboratory evaluations of antimalarial drugs. Likewise, the government-coordinated
experiments to test the effectiveness of penicillin set the scientific standard for the modem
clinical trial that forms the basis for another essential federal role in health, the regulation of
the drug industry to ensure the safety and effectiveness of thousands of new pharmaceutical
compounds before they reach the market.19
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MOTHERS, BABIES, AND HOSPITALS

As the u.s. birth rate topped four million in 1954, the largest category of PHS public
health grants to states was for maternal and child health programs. Amendments to the Social
Security Act between 1950 and 1963 continuously Increased the annual appropriations for
maternal and child health and crippled children's services, which rose from a combined $1.9
million the first year of Social Security in 1936-37 to $87.3 million by 1966-67. Congress
recognized the Importance of maternal and child health research by authorizing the National
Institute of Child Health and Human Development in 1962 and by including a research
44
6
component in new Social Security initiatives passed in 1963 and 1965 to improve the health of
low-income pregnant women and young children who lived in substandard housing and lacked
access to primary care. During this era, pediatricians enjoyed both growing financial success
and social status, yet their commitment to private practice was compatible with broad support
for government-sponsored child health programs. Such positions often put the American
Academy of Pediatrics at odds with the more conservative American Medical Assoclation. 2o
Closely related to the problems of maternal and infant health was access to hospital
care. In the South in 1941, only one-third of all births took place in hospitals versus threequarters of non-southern births, and 23 percent of southern babies were delivered by midwives
versus only 1.5 percent of non-southern births. In 1938, toxemia killed women in southern
states at rates from 50 to 150 percent higher than In the rest of the United States, largely due
to lack of medical care. Since most southern hospitals did not admit blacks and many rural
counties had no hospital at all, rural black mothers and infants benefited least from the medical
advances available from trained professionals in modern hospitals. 21
From 1947 to 1971 the Hill-Burton Hospital Survey and Construction Act built a modem
health ca~e Infrastructure with $3.7 billion in federal funds, matched by $9.1 bi!lion from state
and local governments, to create space for nearly a half million beds in 10,748 projects,
Induding nursing homes and other specialized facilities. 22 Hill-Burton was among the first and
most successful examples of a new postwar brand of federal reform that garnered bipartisan
support by blending centralized planning, economic development, and a rationale for domestic
spending based on national defense. 23
I", the absence of a national health Insurance program, Hill-Burton substantially
increased access to charity care by expanding the number of government-owned hospitals and
the overall proportion of beds In public hospitals, particularly teaching institutions affiliated
with medical schools. This had major implications for the racial desegregation of hospitals, since
partiCipation in the Hili-Burton program constituted "state action" that placed private as well as
public hospitals under the equal protection clause of the Fourteenth Amendment and obligated
them to admit patients without regard to race. 24
Hill-Burton's provisions benefited the South most of all. The program's graduated,
need-based allocation formula paved the way for federal sponsorship of southern health,
education, and welfare as well as costly new infrastructure that undergirded Sun Belt prosperity
while allowing southern states to maintain low taxes. By 1955, southern. states drew 20 percent
of their revenues from federal sources, well above the national average of 14 percent.
Ironically Mississippi, the epicenter of antifederal sentiment and the backlash against
federally mandated desegregation, tied for fourth with Arkansas among states with the highest
percentage of their budgets from federal funds. Today, despite the marked improvement of the
southern economy since the Great DepreSSion, many southern states receive more in federal
aid than they pay In federal taxes. As the culmination of the post-1938 New Deal that targeted
federal resources to the South, Hili-Burton was the last and most progressive expression of
redistributive mid-century IIberallsm.2S
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ON THE CUnlNG EDGE Of RESEARCH; THE NIH

In 1930, the PHS Hygienic laboratory was renamed the National Institute of Health
(NIH), which signaled an Increased federal Investment in medical research, particularly on
45
7
chronic diseases, which had replaced infectious diseases as the most common killers. The
National Cancer Institute was the first disease-specific institute to be established, in 1937, Since
the end of World War II, the NIH along with the CDC have been the main channels through
which the federal government has invested in protecting and promoting the health of
Americans through research, training, and disease tracking programs.
After World War II, the NIH (with "institutes" now a plural) grew rapidly to become the
world's single largest funder of biomedical research on cancer, heart disease, microbiology,
dentistry, mental health, neurological diseases and blindness, and arthritis and metabolic
diseases. From the 19505 on, the agency emphasized basic science research, particularly the
cellular and molecular biology of disease, which in turn underwrote the establishment and
expansion of a nationwide network of academic medical centers whose primary mission was
research, These centers partnered closely with private drug firms, who employed a steady
stream oftop-notch graduates subsidized by federal training grants, the G.I. Bill, and the 1958
National Defense Education Act.
Of all arms of federal health polley, the NIH has enjoyed the largest and most consistent
appropriations and the greatest bipartisan support. Unlike other areas of federal research and
development funding, which have fluctuated based on external events, the NIH -budget has
grown steadily decade after decade. Its annual appropriation increased from $81 million in
1954 to $1.6 billion by 1968. By 2004, it had reached nearly $28 billion.
Yet ifthere was a special interest In Congress that could rival biomedical research, it was
Big Tobacco. The majority of credit for reducing rates of cancer (as opposed to treating it) goes
to the 1964 Surgeon General's Report on Smoking and Health, which definitively linked
cigarette smoking with significantly higher risks of lung cancer as well as heart disease,
emphysema, and bronchitis. Annual per capita cigarette consumption increased from 54
cigarettes in 1900 to an astounding 4345 cigarettes in 1963, but then slowly decreased to 2261
in 1998.26
Despite the tobacco industry's best efforts, the report was widely distributed and
reported in the media, creating the necessary atmosphere for public health officials to pursue
regulations. These included placing the now-ubiquitous Surgeon General's warnings on
packaging, and Federal bans on Cigarette advertising on radio, television, or billboards. The
1964 Surgeon General's Report set a precedent for establishing and publicizing all types of
health risks, as well as for the scientific resolution of controversial Issues via the collective,
objective review of evidence. Finally, the report accorded the Surgeon General and the federal
government a powerful new level of authority in protecting national health. 27
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NATIONAL HEALTH INSURANCE: A DREAM DEFERRED?

During the 1960s and 1970s, a highly favorable social and political climate fostered
innovation and expanSion In federal health programs. As a keystone of President Lyndon B.
Johnson's Great Society, the 1965 Medicare-Medicaid amendments to Social Security together
helped to extend medical and hospital care to millions of Americans who had been excluded
from the private health system on the basis of both race and income. By the mld-1960s, more
than 40 million of America's 193 million people--nearly 20 percent--remained uninsured. Not
only did Medicare-Medicaid remove financial barriers for the elderly and many (but not all) of
those under 65 who could not afford care, it also brought about the racial desegregation of
46
8
health care by requiring compliance with the 1964 Civil Rights Act for all participating
hospitals. 28
Medicare and Medicaid, originally intended to include the two largest groups of
uninsured who lacked employer-based coverage, now function as much to preserve the
financial status of middle-class Americans as to enable the poor to purchase health care. Many
middle-class individuals become beneficiaries of both Medicare and Medicaid, which pays at
least part of costs for 70 percent of nursing home residents, thereby sparing them from having
to rely as heavily on their families' resources. Medicare foots the bill for health care at the age
when it is typically most expensive, while Medicaid subsidizes the long-term care needs of the
nation's elderly and chronically disabled. Medical and nursing home care rank alongside
postsecondary education and home mortgages as the most expensive items that most
Americans will buy in their lifetimes. All three are federally subsidized, but college loans and
mortgage Interest are less universal and the federal government pays a much lower share of
the total than for long-term care and medical costs over age 65. 29
With the passage of the 2010 Affordable Care Act, President Barack Obama signed into
law a major milestone in federal health reform. While it still fell short of the long-pursued goal
of universal comprehensive health coverage, the act won important concessions from the
insurance industry, such as ending the practice of denying coverage to children under nineteen
based on a pre-existing health condition, enabling parents to keep their children as
beneficiaries on their health Insurance up to age twenty-six, ending lifetime and most annual
limits on care, and providing free access to recommended preventive services such as
colonoscoples and mammograms. The law also offered tax credits to encourage small
businesses to Insure more workers and grants to enable states to establish affordable insurance
exchanges designed to Increase competition among health insurance provlders. 3o
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The Affordable Care Act's passage marked a historical first: the American Medical
Association solidly endorsed federal health insurance legislation, although it opposed the
president's public option plan to compete with private insurers. The AMA had supported the
goal of universal health care in 1921, but the AMA's policy stance had been to oppose
vigorously every national health insurance bill since 1939.31 The AMA's leaders
(notwithstanding considerable dissent among the membership) held fast to the private
Insurance system as the only acceptable method of financing health care, which pitted the,
organization against any proposed government-sponsored health plan.
With the passage of Medicare, however, physicians became dependent on
reimbursements from the program and lobbied hard to preserve rates they deemed
acceptable. The AMA's support for the Obama administration's bill can be interpreted in part as
a strategic move to retain the allegiance of key Democrats for the group's Medicare and other
policy positions. Yet it was also a striking departure for the AMA's executive vice president,
Michael D. Maves, to admit that "We do not believe that maintaining the status quo Is an
acceptable option for physicians or the patients we serve."
It remains to be seen how the law will be implemented, but the AMA committed its
support for "achieving enactment of comprehensive health system reform legislation that
Improves access to affordable, high-quality care and reduces unnecessary costS.,,32 As long ago
as 1969 the group called adequate health care "a basic right of every citizen," and given time,
the Affordable Care Act will move the country forward toward that goal.
47
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1 Gary W. Shannon and Gerald F. Pyle, Disease and Medical Care in the United States: A
Medical Atlas of the Twentieth Century (Macmillan Publishing Company, 1993), 3-4.
2 Shannon and Pyle, Disease and Medical Care in the United States: Allan M. Brandt, The
CIgarette Century: The Rise. Fall. and Deadly Persistence of the Product that Defined America
(Basic Books, 2007), 126.
3 Alexander D. Langmuir, "The Surveillance of Communicable Diseases of National
Importance, New England Journal of Medicine 268.4 (1963), 182.
4 John Duffy, The Sanitarians: A History of American Public Health (University of Illinois
Press, 1992), 159-61.
5 U.S. Public Health Service, National Office of Vital Statistics, Vital Statistics Rates in the
United States. 1900-1940 (GPO, 1947), 330-31.
6 Report of the President on the Emergency Relief Appropriations Acts. 1935-1941 (GPO,
1941), 32; Frederick Dodge Matt and Milton I. Roemer, Rural Health and Medical Care
(McGraw-Hili Book Company, 1948), 385, 392; Florence Kerr, "Health Conservation and the
WPA" (Oct. 21, 1939 speech), WPA Papers, RG 69, series 737, box 7, National Archives; Mullan,
Plagues and Politics, 102, 121; Margaret Humphreys, Malaria: PovertY. Race. and Public Health
In the United States (Johns Hopkins University Press, 2001), 49-68; Martin V. Melosi, The
Sanitary Citv: Urban Infrastructure In America from Colonial Times to the Present (Johns
Hopkins University Press, 2000), 224-29.
7 Michael M. Davis, America Organizes Medicine (Harper & Brothers, 1941), 278-79;
Alan Derickson, Health Securitv for All: Dreams of Universal Health Care in America (Johns
Hopkins University Press, 2005),44,79.
B Paul Starr, The Social Transformation of American Medicine (Basic Books, 1982), 18097.
9 Carl V. Reynolds, "Coordination of Public Health and Related Agencies:' North Carolina
Medical Journal 1.1 (1940), 24-25.
1D Congress, Senate, Committee on Education and Labor, SubcommIttee on Wartime
Health and Education, Interim Report (GPO, 1945), 1-2, 5-6, 22; "How Sick is the South?"
Southern Patriot 3 (May 1945), 2; "North Carolina's Draft Rejection Figures," North Carolina
Medical Joumal6.1 (1945), 39-40; Mott and Roemer, Rural Health and Medical Care. 117-21,
131,135.
l l Patricla Sullivan, Uft Every Voice: The NAACP and the Making of the Civil Rights
Movement (The Free Press, 2009), 228-29; Congress, Senate, Committee on Education and
labor, To Establish a National Health Program: Hearings on S. 1620 (GPO, 1939),237-43, 28590,891-98; Congress, Senate, Committee on Education and Labor, Construction of Hospitals:
Hearings on S. 3230 (GPO, 1940),78-91; Congress, House, Committee on Interstate and Foreign
Commerce, Hospital Construction Act: Hearings on 5.191 (GPO, 1946), 184-88; Karen Kruse
Thomas, Deluxe Jim Crow: Civil Rights and American Health Policy. 1935-1954 (University of
Georgia Press, 2011).
12 Mullan, Plagues and Politics. 116.
13 leo Slater, War and Disease: Biomedical Research on Malaria in the Twentieth
Century (Rutgers University Press, 2009), 7-13, 50-57, 123-55,170-71; Randall M. Packard, The
Making of a Tropical Disease; A Short History of Malaria (Johns Hopkins University Press, 2007),
48
10
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140-41; Donald Burke and David Sullivan, "A Brief History of Malaria Research at Johns
Hopkins, Johns Hopkins Malaria Research Institute, Malaria: Progress, Problems and Plans in
the Genomic Era conference proceedings, Jan. 27-29, 2002, Baltimore, MD.
14 Stevens, In Sickness and in Wealth, 49; E. Walls, "Hot Springs waters and the
treatment of venereal diseases: The U.S. Public Health Service Clinic and Camp Garraday,"
Journal of the Arkansas Medical Society 91 (1995),437; Raymond A. Vonderlehr, "Are We
Checking the Great Plague?" Survey Graphic 29.4 (1940), 217; ''VD Balance Sheet," TIme Sept.
30,1946.
15 Thomas Parran qtd. in Karen Ferguson, Black Politics in New Deal Atlanta (University of
North Carolina Press, 2002), 112. The full scope of the Tuskegee Syphilis Study and its ethical
implications are beyond the scope of this essay, but they are ably discussed in Susan M.
Reverby, Examining Tuskegee: The Infamous Syphilis Study and Its Legacy (University of North
Carolina Press, 2009). On the role of race in the Public Health Service and federal health policy,.
see Thomas, Deluxe Jim Crow.
16 Beardsley, Historv of Neglect 172-74; Allan M. Brandt, No Magic Bullet: A Social
Historv of Venereal Disease in the United States Since 1880 expanded edition (Oxford University
Press,1987),161-70.
17 "VD Balance Sheet"; U.S. Public Health Service, 1945 Annual Report (GPO, 1946), 295301; M. A. Waugh, "History of clinical developments in sexually transmitted diseases," in K. K.
Holmes, P. Mlirdh, P. F. Sparling, & P. J. Wiesner, eds., Sexually Transmitted Diseases 2nd edition
(McGraw-Hili, 1990), 13; "Rapid Treatment Center Closes," American Journal of Public Health
40.8 (1950), 1056-57.
18 Brandt, No Magic Bullet, 176-79.
19 Harry M. Marks, The Progress of Experiment: Science and Therapeutic Reform in the
United States. 1900-1990 (Cambridge University Press, 2000), 53-59, 10S-28, 98-135; Starr,
Social Transformation of American Medicine. 335-44; Joseph Earle Moore, J. F. Mahoney,
Walter Schwartz, Thomas Stemberg, and W. Barry Wood, "The Treatment of Early Syphilis With
Penicillin: A Preliminary Report of 1,418 Cases," Journal of the American Medical Association
126.1 (1944): 67-72; Joseph Earle Moore, Penicillin In Syphilis (Charles C. Thomas, 1947), 4; M.
Merrell, "Results of the nationwide study of penicillin in early syphilis; amorphous penicillin in
aqueous solution/' American Journal of Syphl!is. Gonorrhea. and Venereal Diseases 33.1 (1949),
12-18; Daniel Carpenter, Reputation and Power: Organizational Image and Pharmaceutical
Regulation at the FDA (Princeton University Press, 2010).
20 John L. Thurston, "More Opportunities for All Through SOCial Security," Apr. 9, 1952,
Federal Security Agency-General Correspondence, box 29, Oscar Ewing papers; William Shonlck,
Government and Health Services: Government's Role In the Development of U.S. Health
Services. 1930-1980 (Oxford University Press, 1995) 92; Abraham M. Lillenfeld and B.
Pasamanlck, "The Association of Maternal and Fetal Factors with the Development of Cerebral
Palsy and Epilepsy," American Journal of Obstetrics and Gynecology 70 (1955): 93-101.
21 Beardsley, Historv of Neglect, 13-14; "The Symptoms," Southern Patriot 3.5 (May
1945),3; Mott and Roemer, Rural Health and Medical Care, 290, 306.
49
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22 U.s. Senate. Committee on labor and Public Welfare, Subcommittee on Health, HfIIBurton Hospital Survey and Construction Act: Historv of the Program and Current Problems and
Issues (Committee Print, 1973), 11-13.
23 Stevens, In Sickness and in Wealth. 220-21; Daniel M. Fox, Health Policies. Health
Politics: The British and American Experience. 1911-1965 (Princeton University Press, 1986),
117-31; Edward Berkowitz. "Historical Insights into the Development of Health Services
Research: A Narrative Based on a Collection of Oral Interviews," National library of Medicine,
http://www.nlm.nih.gov/hmd/nichsr/intro.html#W31-3 accessed May 5, 2011.
24 Karen Kruse Thomas, "The Hill-Burton Act and Civil Rights: Expanding Hospital Care for
Black Southerners, 1939-60," Journal of Southern Historv 72.4 (2006), 860-61.
25 Lewis E. Weeks and Howard J. Berman, Shapers of American Health Care Policy: An
Oral History (University of Michigan Press, 1985), 39; Bruce Schulman, From Cotton Belt to
Sunbelt: Federal Policy. Economic Development. and the Transformation of the South. 1938l2iQ (Duke University Press, 1994), 118-19; "The Republican Welfare States," Atlantic Monthly
Mar. 2004, 48.
26 "Achievements in Public Health, 1900-1999: Tobacco Use -- United States, 19001999," Morbidity and Mortality Weekly Report 48.43 (1999): 986-93.
.
27 Brandt, The Cigarette Century, 211-39.
28 Jill Quadagno and Steve McDonald, "Racial Segregation in Southern Hospitals: How
Medicare 'Broke the Back of Segregated Health Services;" In Elna C. Green, ed., The New Deal
and Bevond: Social Welfare in the South since 1930 (University of Georgia Press, 2003), 120-22.
19 Colleen M. Grogan, "A Marriage of Convenience: The Persistent and Changing
Relationship Between Long-Term Care and Medicaid," In Stevens, Rosenberg, and Burns, History
and Health Policy in the United States
30 "Understand the Law," www.healthcare.gov, accessed Sept. 2, 2011.
31 Derickson, Health Security for All. 140-43.
32 "TImes Topics: American Medical Association;'
http://topics.nytlmes.com/toplcs/reference/timestopics/organizatlons/a/amerlcan_medlcaLass
odation/index.html, accessed Sept. 2, 2011; Michael D. Maves to Harry Reid Dec. 1,2009,
http://www.ama-assn.org!resources/doc/washington/hsr-ama-reid-hr3590.pdf, accessed Sept.
2,2011.
50
Chairman ISSA. Thank you. I couldnt disagree with you more,
Doctor. First of all, I wasnt talking about NIH; it is a small part
of the budget compared to the trillion dollars plus that Medicare
and Medicaid consume. The ranking member, in his opening statement, talked about the buy-in rate of Social Security and Medicare.
With all due respect, the buy-in rate is mandated by law, and the
people who are not in it are in fact State employees and city employees who have the good fortune to be out of the system, in most
cases to their benefit.
I am from California, which is the largest area of an alternative
to the Social Security system, one in which the returns are three
to four times greater than what Social Security does, which means
for the same amount of dollars in California State employees, city,
county, that participate receive far better benefits. But we are not
here to talk about Social Security or the NIH.
What we are here, I believe, is to figure out some questions that
Dr. Winstonand, Dr. Winston, Brookings is not a right-wing conservative bastion, is it? Not a trick question.
Mr. WINSTON. No.
Chairman ISSA. Okay.
Mr. WINSTON. It is not anything, to the best of my knowledge.
Chairman ISSA. Right. Usually when we look for people on the
left, we often look to Brookings; when we look for people on the
right, Mercatus, Cato, and so on often come in. We try to have a
balance here.
You said some very important things and I am going to use my
time specifically on areas that are more liberal for a moment. You
mentioned monopolies, free rider, market distortions. Those are all
good points and I think you made some points. And the Affordable
Care Act, although I didnt vote for it, does recognize that the market is dysfunctional.
But, Dr. De Rugy, CMS underpays the prevailing rate, the cost
of healthcare, dont they? So isnt Medicare and Medicaid, administered by CMS, already distorting the market by taking private sector doctors and hospitals and underpaying, compared to what the
private sector has been paying, and cost-shifting then to private
sector by statute?
Ms. DE RUGY. This is a very good question. I am not a healthcare
expert, but one of the things that we know about government intervention is that it often distorts pretty widely the market it operates
in. And as Dr. Thomas rightly mentioned, the healthcare market
has been highly subsidized and Government has intervened quite
widely. So yes, of course, we can expect that providers would be expected to provide a service at a lower rate than they would otherwise, which creates problems, and also force people to pay at a
higher price than they could otherwise.
Chairman ISSA. Dr. Calabria, similar question. The fact is that
Federal intervention, over a trillion dollars worth of money taken
involuntarily by American workers that are spent on Medicare,
Medicaid, do eligible, the poor, retirees, so on, it is over a trillion
dollars. Is there any case to be made, not that the money hasnt
done good, because people do have healthcare, but is there any case
to be made that it has driven down the cost of delivery to the
American people broadly?
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Mr. CALABRIA. I think this is something we fundamentally see
across a variety of areas, whether it is housing, whether it is education, whether it is healthcare. If you take something, and again
I am going to apologize for making members think about their
Econ 101 classes, but if you think about something where the supply is relatively fixed, if you give people more money to spend on
that, you will largely run up prices. You have to make sure that
you are actually doing something that increases supply in the process, and for the most part healthcare, like education, like housing,
is relatively inelastic; that is, supply does not increase a lot in the
interim. So we do need to make sure that it isnt simply captured
by providers, but it actually flows through to the ultimate beneficiaries.
Chairman ISSA. One of the areas that I want to bring out today
that is going on today, and it is a little off topic, but I think it is
appropriate, CMS is reimbursing hospitals at a rate higher than
clinics or doctors offices. And, Dr. Thomas, you talked about this
rugged individual doctor. I havent met them, so they must have
been before my time, because doctors, in fact, have joined hospitals,
and even when they have clinic practices they are being bought out
by hospitals because CMS has made a decision that the same procedure they will pay two to three times more if it is done in a hospital, even if not clinically necessary, than if it is done in a clinic
or doctors office.
Is there any question in your mind not that Affordable Care Act
should be scrapped or not scrapped, any of that, is there any question in your mind that we need serious reform in how we deliver
medicine so that the patient gets the best value?
Ms. THOMAS. Yes, and I agree that we do need reform, but leaving the market to act supposedly independently is not the way to
achieve that.
Chairman ISSA. Right. And no one here is suggestingand I will
close with this, Mr. Ranking Memberno one is suggesting for a
moment that we take Government out of healthcare. I was with
former member Jim Marshall, a dear friend of mine, today and we
were talking about the fact that we have taken the consumer out
of the process. And nothing in the Affordable Care Act puts the
consumer back into it. If anything, health savings accounts and
other areas in which the consumer was making decisions about
best value have been taken away.
So as much as we can rail for or against the Affordable Care Act,
today is one of many hearings that I believe this committee will
have on both how do we get good product for the Federal Government, like a website, if it is determined to be there, but also how
do we deal with the fact that since Medicare enactment what we
have done is we have inordinately driven up the cost of healthcare
with cost-shifting from the Government whenever possible to the
private sector. It is not sustainable as the Government becomes a
bigger and bigger buyer.
And I think, Mr. Ranking Member, with the Affordable Care Act
we are going to see that, which is we are telling insurance companies what is the cost, and we cant tell them to work for less, so
when they give us the cost it is higher. And I think it is the first
time, unlike Medicare, where we just find what we will pay, it is
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52
the first time that we are dealing with the market force and finding out that we havent driven down cost, and that is something
that your constituents and my constituents demand that we figure
out how to do.
With that, Mr. Ranking Member, Elijah, I recognize you.
Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr. Chairman, I too want a good product for the Federal Government, and
I do believe in effectiveness and efficiency. I also want to make
sure that every single American has healthcare and that we save
lives. So I want to thank our witnesses for being here today.
Dr. Thomas, the basic idea seems to be, in this hearing, that the
Government is bad and the private sector is good; the Government
should not intervene, it should not try to help people, it should not
distort market forces. I certainly understand the logic behind free
market principles, but I think we need to recognize that private
corporations are not going to necessarily look out for the poorest,
the sickest, and the least fortunate among us. We have seen people
thrown off of their insurance policies over and over again. We see
the preexisting condition situation, where women had minor ailments in the past and the next thing you know she doesnt have
insurance because she didnt even know there was a preexisting
condition.
So, Dr. Thomas, I want to ask you, as a historian, to take us
back and describe for us what it was like for our Nations seniors
100 years ago, before Social Security, before Medicare, before they
had the social safety net that they have today. What was it like
for poor, elderly Americans heading into their final years when
they were unable to work or to rely on a family or friends?
Ms. THOMAS. Well, before Social Security and before Medicare
and Medicaid, older Americans were the single most impoverished
demographic group in American society and one of the problems
with healthcare markets is that it is not profitable to provide many
types of healthcare that are most needed. So care for long-term
chronic disability, such as that caused by tuberculosis or cancer or
many other diseases that afflict us in old age, is very expensive to
provide, so that has traditionally been provided, in many cases, by
either nonprofit charitable organizations or by Government hospitals. In those days, many poor people would end up in poor
houses, and there were no separate health facilities to even care for
them.
Mr. CUMMINGS. Is it safe to say that some of them died?
Ms. THOMAS. Absolutely. Yes.
Mr. CUMMINGS. So where did they go for healthcare services if
they had no insurance?
Ms. THOMAS. Well, if they were lucky enough to belong to a fraternal order, they might go to their fellow members for help, but
the resources there were so small and especially in the rural south
and in poorer parts of the Country, even in the poorer areas of
northern cities, the resources were simply not available, either individually or collectively, to pay for adequate medical care, and certainly not for preventive care. And I think one thing we havent
really talked about is the cost of not preventing disease is much
greater than the cost of preventing it.
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Mr. CUMMINGS. Ron Paul stated, during the debate in 2012, that
when he started medicine, he said, There was no Medicare or
Medicaid and nobody was out in the streets. I dont know how old
he is, but do you agree with that assessment?
Ms. THOMAS. I do not. In fact, there has been a very livelyin
the 1930s and 1940s people were riding the rails; many people
were in fact homeless during the Depression. I dont know how old
he is, but certainly there were people on the streets at that time
as well.
Mr. CUMMINGS. There is a New York Times article this morning
that talks about 39 percent of the bank tellers in New York are
getting some type of public assistance, and, of course, that probably
means a lot of them dont have insurance; they need some assistance. What about that type of population? And this is in New York,
now.
Ms. THOMAS. Right. Well, they can go to city, State, and federally-funded health clinics; they can end up in the emergency rooms
of their local hospitals, who are required by law to care for them;
and in some cases they may get inadequate care or get care too
late, which can end up being even more costly in the long-run, or
they may die.
Mr. CUMMINGS. And that doesnt necessarily include the followup.
Ms. THOMAS. Correct.
Mr. CUMMINGS. Right. They might get care right there, but then
the question is what follow-up is there, is that right?
Ms. THOMAS. That is right. And if the services are not coordinated, and that is a function that government agencies often have,
if the services are not coordinated, then it may be very difficult for
individuals to navigate through the system and get care.
Mr. CUMMINGS. Just a last question. Dr. Thomas, The Washington Post cited a report issued in 1959 by the United States Department of Health and Education Welfare, finding that the elderly
faced disproportionate risk of illnesses, yet had less ability to afford
medical care, mostly because of fixed incomes. It also cited a report
issued in 1963 by Social Security Administration which concluded
Many aged persons never recover from economic effects of a single
hospital episode. Unfortunately, the heaviest burden is likely to fall
on those with the least resources, and even for the insured there
is no present guaranty against dependency in old age caused by
catastrophic medical expenses.
Do you agree with that?
Ms. THOMAS. I do, and a major problem with the healthcare market is the people who are most likely to be able to participate in
the private healthcare market are the least likely to need extensive
and very expensive care. So if we do not broker a system where everyone is participating and everyone is covered, then there will be
large populations that are not covered and that create major needs
for care.
Mr. CUMMINGS. Thank you, Mr. Chairman.
I now ask unanimous consent that the pages from Wikipedia on
Alexander Fleming be placed in the record. Without objection.
Chairman ISSA. Dr. Thomas, do you know who Dr. Fleming was?
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54
Ms. THOMAS. Of course I do.
Chairman ISSA. So March 7th, 1929 is the date of the invention
and naming of penicillin?
Ms. THOMAS. Yes.
Chairman ISSA. In Scotland?
Ms. THOMAS. Yes.
Chairman ISSA. Okay. I just wanted to make sure it was World
War I that caused it to be invented. It was World War II that it
was widely used in and had very little to do with the U.S. Federal
Government except that we were a recipient of Scottish invention.
Mr. CONNOLLY. Mr. Chairman? Would you yield for a unanimous
consent request?
Chairman ISSA. Of course.
Mr. CONNOLLY. I thank the chair.
While we are putting things in the record, I would ask unanimous consent that an article from The Washington Monthly called
The Best Care Anywhere, by Phillip Longman, be entered into the
record.
Chairman ISSA. Without objection, so ordered.
Chairman ISSA. Dr. Thomas, I put this in, but I went beyond it.
Is there something you wanted to say? I didnt want to cut you off.
Ms. THOMAS. Just that we may have had penicillin before World
War II, but we did not know in what dosage to use it or how to
effectively treat disease with it until we conducted clinical trials
during World War II that were coordinated by the Federal Government. That is what I meant.
Chairman ISSA. By the Department of War, yes.
We now go to the distinguished gentleman from Florida, Mr.
Mica.
Mr. MICA. Thank you, Mr. Distinguished Chairman. Good to be
with you this morning. Thanks for highlighting some of the issues
that we face with the size and scope and reach of Government.
Probably some fundamental questions. Ever since the founding of
the Republic, to get away from kings distant rule, taxation without
representation, and then the size and scope of government and
their interference in the colonies affairs, shifting to the creation of
our current government, founding fathers were always skeptical of
government, and again probably for good reason. The longer I stay
here, the longer I am convinced that government could screw up a
two car funeral and, if given the opportunity, often does.
Big government programsI saw some of your comments, Dr.
Winstonsometimes are adopted because a need, a social need or
public need, is not met or the publics private sector cannot meet
that need. In looking at this whole mess, wouldnt it have been possible tofor example, I think there is pretty wide consensus we
need to do something about preexisting conditions, about people
who were in a lower economic scale, maybe not poverty scale, but
couldnt afford healthcare, but these were some of the deficits that
brought about the government and people stepping in, saying that
government had to take a bigger role. But, honestly, the question
I would pose is wouldnt it have been possible to take and tweak
some existing things to establish a rules that these plans, and then
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55
let the public sector put the plans out there, rather than creating
the exchange, the bureaucracy?
I remember they came to me when I was chairman of transportation. We oversee public programs. They came and said we just
came to tell you we need a building in Washington that will house
5,000 people. That is the administrative people required under
theI am not talking about enforcement people, just theI was
kind of stunned when they said, well, the bill mandates this, we
just can do it, all we have to do is tell you. And then they came
back later and I think they needed a building for 7,000. But
couldnt it have been done by changing some of the requirements
and then letting competition and the private sector, existing mechanism rather than big government take it over?
Dr. Winston, then others.
Mr. WINSTON. I am not an expert in healthcare, but, to be honest, I asked the same question. My thinking about this is we already have an existing insurance program in the Government; it is
quite a large one.
Mr. MICA. Right. We have Medicare and we have Medicaid. Medicaid, in particular, might be a vehicle. But we could have also
mandated that insurance plans cover some of these or
Mr. WINSTON. Or allowed them into the Governments plan.
Mr. MICA. Exactly.
Mr. WINSTON. That was my sense.
Mr. MICA. Exactly.
Mr. WINSTON. I think what we are grappling with is, again, what
really would be the lowest cost solution.
Mr. MICA. Exactly.
Mr. WINSTON. To the extent we want to achieve this goal, how
can we do it at least cost.
Now, my understanding from the experts I know is there is no
magic bullet. No one has ever told me, look, we all know exactly
what would be the least cost solution. I think that is one of the intellectual challenges in dealing with this. But, that said, it would
have been nice to at least see a set of alternatives, including the
one that you are talking about, one that intuitively, to me, made
sense, and sort of get these head-to-head and see how we should
go forward.
Now, maybe that was out there, but through political compromises that didnt work. But I think at least it would be good to
separate out the economics and the politics.
Mr. MICA. We have something else.
You wanted to comment?
Ms. DE RUGY. Government intervention always creates distortion, so no matter what it would have done, so the question is how
do you get the Government to do exactly that social goal at the
least cost without introducing too much distortion. And it is worth
noting that one of the goals of the ACA was to provide universal
coverage, which, by the way, getting insurance is very different
from getting improved health outcome. And when you look at the
actual results, actually not everyone is going to get insurance.
So right there, when you try to measure success and failures, you
see that there is a problem in the way the whole thing was designed. And, yes, targeting it better could have achieved it. It
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would have introduced distortions, because it always does, but it
would have been probably better and maybe even have achieved
the stated goal of the ACA.
Chairman ISSA. You can go ahead and answer briefly.
Mr. CALABRIA. Again, what I will start out with, we know that
the resources have costs, therefore we know that the market is not
going to provide anything at zero cost. Or the fact that somebody
cannot afford something when they have zero income is not a market failure. It is also important to keep in mind that somebody who
has zero income cant pay taxes, and we dont consider that a government failure.
So my point is that we confuse, in my opinion, a number of programs in thinking that this is some market failure to provide a
good, when the problem that we are facing is an issue of poverty.
If rich people dont have this problem, then we know it is not a
market failure. And essentially I think we would have a much better functioning Government if we gave people in poverty the dignity of lets cut you a check and make you non-poor, and lets let
you make the decisions for what is important in your life for you
to spend that money on, rather than us tying assistance to a whole
basket of various different goods, of which, of course, the providers
grab most of the subsidy anyhow.
Mr. MICA. Thank you.
Chairman ISSA. I thank you.
We now go to the gentlelady from New York, Mrs. Maloney.
Mrs. MALONEY. I want to thank the chairman and the ranking
member for holding this important hearing and all of the panelists
for their testimony, many of whom represent distinguished institutions of learning and think tanks. I would like to quote my own distinguished comedic think tank, the Borowitz Report. Now, Andy
Borowitz has pointed out that many or some of my Republican colleagues have criticized President Obama and his team for having
the audacity to support one of their own ideas, an idea that came
out of The Heritage Foundation. And I would like to quote the conservative Heritage Foundation, which had praise for a plan that it
described this way. And this was their report in 2006 on
Romneycare, this statement. They said, The cornerstone for this
reform is a personal and responsibility principle. The plan establishes a health insurance exchange to enable individuals to purchase health insurance. The plan also focuses on restraining the
growth in healthcare costs by empowering consumers and making
healthcare service and cost information more readily available.
The distinguished report went on to criticize some of my Republican colleagues for plotting to make the Affordable Care Act work,
or criticizing efforts by President Obama and his team to be flexible, to make adjustments in the plan. Some went on to criticize the
President and his team for having a website that was far too slow.
Then some turned around and criticizes the Presidents team for
having a website that worked too fast.
So we have some difficulty in working together, but I do think
you raise some important points in your testimony, Dr. Thomas,
and I would like to quote the area where you talked about how
healthcare, not only the improvement in quality of life and education, but the life expectancy has been improved by 37 years, and
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some of this was because of public healthcare and public healthcare
research and standards, and I want to thank you for pointing that
out. But I have some further questions on healthcare.
I would like to ask you, Dr. Thomas, do you remember how many
Americans were without healthcare insurance before the passage of
the Affordable Care Act? How many Americans were there? There
were many reports. Do you remember how many Americans did not
have healthcare?
Ms. THOMAS. I have always gone with the figure of approximately 40 million.
Mrs. MALONEY. Some say 50.7 million in 2010.
Ms. THOMAS. Right.
Mrs. MALONEY. I also want to cite a very important study in
2009 by the Harvard School of Public Health. Now, this celebrated
study, you may remember it, found that a large number of early
deaths were associated with the lack of health insurance. And they
further pointed out that 45,000 Americans died yearly, in their report they estimated, because they did not have health insurance.
Now, do you believe this report, Dr. Thomas, that came from the
Harvard School of Public Health?
Ms. THOMAS. Yes, I do.
Mrs. MALONEY. You do believe that that many people were
dying. And before the passage of the Affordable Health Care Act,
do you recall the percentage of people without healthcare by
States? There were a lot of reports that showed the percentage of
people who did not have healthcare, and it varied dramatically,
from 4 percent to 24 percent. The 24 percent was the State of
Texas. And the 4 percent, guess what State it was? What State was
it that had the highest number of people with health insurance?
Only 4 percent of their population did not have it.
Ms. THOMAS. I am guessing Connecticut, but I
Mrs. MALONEY. No, it was Massachusetts.
Ms. THOMAS. Right.
Mrs. MALONEY. Because of Romneycare.
Ms. THOMAS. Yes, of course. Yes. Yes.
Mrs. MALONEY. Romneycare. And I did my own survey; I called
anyone I know in Massachusetts. They were very happy with their
healthcare coverage.
Do you understand why there was a difference between the 4
percent and the 24 percent? What was the difference?
Ms. THOMAS. Because there was Romneycare in Massachusetts.
Mrs. MALONEY. Yeah, Romneycare, which President Obama gives
full credit to the distinguished former governor for his work in supplying healthcare to the vast majority of the people who live there.
Are you also aware that in the three years since 2010, the real
per capita annual growth rate of national health expenditure has
been just 1.3 percent? And this responds to the concerns that I
think are very legitimate of the chairman to contain costs. We all
agree the costs were out of control, and the historic average growth
rate was 4.5 percent. But now, because of the Affordable Care Act,
we are at 1.3 percent growth in the cost of medical care.
So I would like to ask any of the panelists are you able to point
to any prior three-year period that saw a lower growth rate in our
national healthcare expenditures ever in history?
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Chairman ISSA. The gentleladys time has expired, but please answer.
Ms. DE RUGY. So, actually, the growth in the cost of healthcare
has been going down since 2003, and, in fact, it has stopped to decline since 2009. So in some ways you could actually say that
maybe the ACA has actually paused that decline in the cost. And,
in fact, CMS has put out a report which actually one of my colleagues, a trustee for Social Security and Medicare, charged
Mrs. MALONEY. Reclaiming my time. If you could get your response in writing, because I think it is very important, and it is
absolutely different from the report that I have seen on the per
capita growth rate that showed a 4.5 annual growth in expenditures. I think this is an important point and we should get this in
the record.
Chairman ISSA. Without objection, that material could be placed
in the record.
Ms. DE RUGY. Absolutely.
We now go to the gentleman from South Carolina.
Mrs. MALONEY. And may I also place in the record my research
on this from the National Institutes of Health on the growth rate
during those periods.
Chairman ISSA. Anything from the National Institutes of Health
will be welcome. Without objection.
Mrs. MALONEY. Thank you.
Chairman ISSA. Mr. Gowdy.
Mr. GOWDY. Thank you, Mr. Chairman. The debate over the role
of Government in our Republic is a fascinating one and probably
outside the boundaries of a five-minute Q&A. What is not debatable is if Government is going to enter into something, we have a
legitimate expectation that they do so competently and in a trustworthy fashion.
So, Dr. Thomas, let me start with you. What do you think the
largest avoidable mistake was with respect to the rollout of the
website? The largest avoidable mistake.
Ms. THOMAS. I am not qualified to speak to that. I am not knowledgeable about the technological aspects of the website.
Mr. GOWDY. Neither are the people who designed the website,
apparently. You have no thoughts on what the largest avoidable
mistake was with respect to the website?
Ms. THOMAS. I do not.
Mr. GOWDY. Dr. Calabria?
Mr. CALABRIA. I would preface with saying I am not an IT expert, I am not an expert on the website, so I certainly would say
the sense you had to have it running by a certain date, rather than
having made sure it was ready before I certainly think is a mistake, but I would emphasize what Dr. Thomas said, not an expert
on the website.
Mr. GOWDY. Well, let me ask you this, then, if you are not an
expert on the website. It strikes me that if there is a security issue
with Amazon or eBay, the consumer has recourse; there are consequences for that. What are the consequences if there are security
issues with a Government website? I mean, you could argue that
there would be electoral consequences, but we had a several hour
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hearing and I still cant tell you who is responsible for the website.
I can tell you it is not the President, it is not Kathleen Sebelius,
it is not any of the people that you would think would be responsible for this train wreck. So what does a consumer do when they
are let down by a Government website?
Mr. CALABRIA. I think that is an important point, and both
Veronique and myself talked about the role of incentives here,
which is, A, there is often not clear chains of authority, I mean, the
buck should stop somewhere with something; and there is never
any penalty, there is never any punishment. Certainly not the
website. Alone, we have all heard the stories of NSA spying and
going through what we are all looking at on the web, but I havent
yet heard of any NSA employees being disciplined for that.
Mr. GOWDY. I have one even worse than that. How about the
GSA? Do you remember the picture of the gentleman with the glass
of wine in the hot tub?
Mr. CALABRIA. Oh, yes.
Mr. GOWDY. Do you know what consequences came from that?
Mr. CALABRIA. I believe they rehired him. Of course, I will also
say, as somebody who follows financial services, you have probably
heard of the very large number of SEC employees who spent the
financial crisis looking at porn sites on their office. None of them
were fired. So, again, where is the accountability? Where does the
buck stop is an important part of this question.
Mr. GOWDY. Dr. Winston?
Mr. WINSTON. I mentioned in my testimony that story that I read
about an IT supplier who offered to build this website at no cost.
I cant remember exactly now the name of the firm, but they had
a lot of experience doing it. I am sure we can find that out. But
they were told they couldnt do it because of regulatory constraints,
and then the Government went out and hired another firm. At the
very least, one could have brought them on as a technical consultant or somebody who could provide guidance, because they certainly were confident enough and experienced enough to do it. So
I think clearly an avoidable mistake was just the lack of ability to
bring in the highest level of technical advice and competence,
which apparently may have been able to prevent some of the problems that occurred.
Mr. GOWDY. Well, it just strikes me that you can debate the role
of Government, but if Government is going to do something, you
really should not debate whether it ought to be done competently
and in a trustworthy fashion. And there are no consequences or, if
there are, I havent seen them to date.
With that, I would yield to the chairman.
Chairman ISSA. I thank you for yielding.
I just want to get two things in the record quickly. One of them
is because there was the doubling of life expectancy, I just want to
get into the record in 1960 we spent 5 percent of GDP on
healthcare and we had a 69.7 combined life expectancy age. In
2006 we spent 16 percent, a more than threefold increase in the
percentage of our growing GDP we had. We became very wealthy
during this period, but we exceeded it by triple and we raised ourselves by eight years, to 77.7.
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Dr. Calabria, quite frankly, isnt that what we should be talking
about, is how we spend more than three times the growing wealth
of our Nation on healthcare and, yes, we are getting an increase
in life expectancy, but certainly not proportional and not when you
look at our competitors around the world, where countries like
Canada, to our north, spend a third to a half less than we do?
Mr. CALABRIA. I would very much agree. You could certainly that
we are spending a lot of money on these things, but what are we
getting? We are getting a bang for our buck and we could do a far
better job of that and try to get more efficiencies out of that, which
I think gets back particularly to Congressman Micas point about
having some consumer choice in this to me is an incredibly important part of it.
Chairman ISSA. Dr. Thomas, my colleague said something and I
am taking something because he said it and he is rightfully so. He
said universal healthcare. The debate that we are having today is
on something that is not universal, it is an extension of Medicaid,
effectively, it is a vast expansion of Medicaid both in literally who
gets it and in the subsidy that is effectively a back-door Medicaid
for the working less wealthy up to over $60,000. From the standpoint of your view of the good it is doing, it is predicted we will
get to 20 percent to 21 percent of GDP as a result of the Affordable
Care Act in total healthcare spending. Would you sit here today
and say that our goal should be to deliver life expectancy beyond
78 years and do it for less than 21 percent of GDP?
Ms. THOMAS. I would respond to that by saying that our
healthcare spending, we are living longer than ever before and
much of our healthcare spending is to deal with the chronic diseases of old age that we used to not have to deal with because were
dying earlier. So those life expectancies
Chairman ISSA. Okay, well, my time has expired, so does anyone
want to answer the question, which is should we have a goal to live
long, live well, and do it at a rate below 21 percent and growing,
or likely to be 21 percent and growing, percentage of GDP, when
we are competing against nations that have 9 percent or less and
have life expectancy as long as ours? Hearing none, I will recognize
that my time has expired.
Mr. GOWDY. Mr. Chairman, could I correct one thing very, very
briefly that my friend from Virginiamy friend from Virginia told
me that there were consequences that arose from a hearing that we
had with respect to GSA. If my friend from Virginia tells me that,
I believe him and I will take it upon myself, Mr. Chairman, to find
out the full panoply of the consequences and report back to you and
to my friend from Virginia.
Chairman ISSA. I thank you. And I dont think there is anyone
here that would fail to think there should be consequences in the
case of GSA.
With that, we go to the gentlelady and my friend from the District of Columbia, Ms. Norton.
Ms. NORTON. Thank you, Mr. Chairman. Just to try to respond
to your question about the correlation between the increase in life
expectancy and what we spend, sure it is going to go down, because
we have been spendingand I think Dr. Thomas gave one answer,
but you know the Affordable Healthcare Act is going to help that
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because we have been spending this money on sending these people, up until now, to the emergency room; we have been spending
almost no money on preventative care; we have been spending disproportionate amounts of money on the very last years of life, when
people are about to die anyway. You have a lot of factors. But I do
want to
Chairman ISSA. Would the gentlelady yield?
Ms. NORTON. If you dont take my time for me.
Chairman ISSA. I will stop the clock.
Are you saying that there is something in the Affordable Care
Act that is actually going to drive down
Ms. NORTON. I am. I am saying, for example, that the subsidies,
which are a part of the Affordable Healthcare Act, means that people are going to get their own doctors, they are going to have preventative care, that you wont get to the point where the disease
is costly, you have to have the most expensive procedure, you have
to have your leg taken off.
Chairman ISSA. I hope to see it.
Ms. NORTON. I am saying that those things will, in time, show
up. They are not going to show up in the first few weeks of the rollout.
And I do want to thank a very distinguished panel. One of them
is one of my own constituents. Welcome, Mr. Calabria. But I want
to thank all of you for your testimony.
I do note for the record that only Dr. Thomas is an expert in
healthcare, and I think that must have been deliberate, because we
are talking about the rollout of healthcare. And that is without
casting any dispersion on the very distinguished witnesses we have
here.
But what troubles me, Mr. Chairman
Chairman ISSA. Would the gentlelady accept a friendly
Ms. NORTON. Certainly.
Chairman ISSA. Dr. Thomas, according to our information, is a
historian and communications associate at Johns Hopkins. We
were unaware. It is the School of Public Health, so it is history of
health. But I may be wrong. Perhaps she could tell us what her
expertise is in health, because everyone today is a PhD. None of
these are medical doctors.
Ms. NORTON. She is an expert on healthcare, Mr. Chairman. And
if she is not, let her tell us.
Ms. THOMAS. I spent four years doing a post-doctoral fellowship
in the history of medicine, largely concentrating on twentieth century health policy in public health at the Institute of the History
of Medicine at Johns Hopkins University.
Ms. NORTON. I was simply drawing a contrast between some
background in healthcare, and I did say, even though I respect all
three of the other witnesses, Mr. Chairman, I hope that wasnt
taken from my time.
But I do want to say that this is an amazing hearing that the
Government of the people, by the people, and for the people should
not provide healthcare for the people is essentially the theme of
this hearing. It is a fundamentally anti-American message. Fortunately, it is false, and I think the chairman, with his rollout of the
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many ways in which the Government has produced for the people,
lays that to rest.
The Affordable Healthcare Act is not a Government program. Not
even single payer. So I dont understand the concept here. This is
a Republican idea which outsources to the private sector. This is
why the insurers bought into the program and that is why they are
so anxious that this website get up and get right. Yes, they are getting subsidies, but that is to save the American people money. Nobody is just throwing money at people.
Mr. Chairman talked about D.C. Health Link. Yes, there are errors there, but it was cited as one of the four successful rollouts
throughout the United States, and I want to cite it because it is
an example of why this is not a Government program. You go on
D.C. Health Link; 267 options. And when they insisted that on
D.C. Health Link they would put the costs up front out so anybody
could see it, they drove competition and others came in and lowered their prices. This is a quintessentially private sector approach.
The Governments only role is to say we are not even refereeing it,
we are putting up a website. That is why we think that website
has got to be gotten right.
The chairman talked about winners and losers. Here we have
267, or whatever the number is in your district. Nobody is picking
anything except the people who go on that website.
Mr. Calabria talked about market feedback. I just cited to you,
Mr. Calabria, what the market feedback was when competitors saw
267 prices on the link. They never could have seen it otherwise.
The individual never could have gotten that information if it had
not been for D.C. Health Link. My staff went on there and report,
for example, several of them have reported to me that they have
saved $100 already looking on the site, with comparable
healthcare, $100 per month.
Dr. Winston talked about programs in the public sector, like
ACA, do not necessarily drive down costs, and he may be right. Of
course, I have cited an example where, precisely because the Government put this website out, costs are being driven down.
One thing that ACA does not have is a mechanism, a Government mechanism for driving down costs. They are depending upon
this competition to do so.
I want to ask Dr. Thomas aboutsince what was supposed to
have spurred this was the rolloutabout the Medicare rollout.
Now, we would have done Part D in a different way. The last thing
we did, though, when it finally happened, we certainly didnt say
we will just wipe it off the board. We didnt try to repeal it. Do you
recall public and, for that matter, political sentiment at the time
of the Medicare D rollout, whether there were large problems?
Chairman ISSA. The gentleladys time has expired.
Ms. NORTON. My time was taken up, Mr. Chairman, by you,
among others.
Chairman ISSA. No, we stopped the clock.
Ms. NORTON. You dont even want to let her answer the question?
Chairman ISSA. No, I was saying your time has expired, but the
gentlelady certainly can answer.
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Dr. THOMAS. At the time of the Part D rollout in 2005 and 2006,
there is great concern about how complex the instructions were for
enrollment and people were very concerned that their existing drug
coverage would end and that they would not be picked up by the
new law, and there were great difficulties in the initial implementation of the law that have since been fixed, and we now, I think,
are in bipartisan agreement that Medicare Part D is working and
is a good program.
Ms. NORTON. Thank you, Mr. Chairman.
The gentleman from Tennessee, Mr. Duncan.
Mr. DUNCAN. Well, thank you, Mr. Chairman. I remember during
my first term in Congress, in 1989, I went to a conference put on
by the American Medical Association, and the man who was then
the president of AMA was laughing in a presentation that he made
about the fact that, as the ranking member mentioned, the AMA
had opposed Medicare, because he said that he knew at the time
it was started that the doctors would get their part, and they certainly have. Many doctors have gotten wealthy off of it. And I remember reading last year, I think it was in an Associated Press article, that six of the ten wealthiest counties in this Country are
suburban counties to Washington, D.C.
What I am getting at is, as Dr. De Rugy has mentioned, all these
Federal programs, they have wonderful motherhood and apple pie
titles and they have good goals, but they end up benefitting primarily Government contractors, large corporations, and Government employees. You mentioned Goldman Sachs and some other
companies, and the chairman mentioned that we have spent $640
million so far on the website. The Canadian company whose American subsidiary got the bulk of the money on the website, one of
the top officers is a close friend to the Presidents family. And all
of these Government contracts, when you go beneath the surface
and you find out what is behind it, almost all these big Federal
contracts are some sort of sweetheart or insider deal. I read several
years ago about the revolving door at the Pentagon, because they
hire all the retired admirals and generals, the defense contractors
do.
And the same thing is going to happen, I am afraid, with
Obamacare. It is going to end up benefitting some extremely big
companies. I read just this morning an article that some of the
health insurance companies are now working with the White
House to try to implement the program because they see huge profits ahead.
And I think back to the mid-1990s, when I went to a reception
in Tennessee, and the doctor who delivered me came and brought
my records, and I asked him how much he charged back then. He
said he charged $60 for nine months of care and the delivery, if
they could afford it. Medical care used to be cheap and affordable,
and doctors even made house calls; and then the Federal Government got into it. The same thing has happened. It shocked students
at the University of Tennessee when I tell them that it was $90
a quarter when I went there, $270 a year. Until that program
started, college tuition and fees went up at just the rate of inflation. Then when the Federal Government got into it, every year
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since then it has gone up three or four or five times the rate of inflation.
It just seems that everything the Federal Government subsidizes,
the costs just explode. And we talk now, already we are hearing
that Obamacare is going to cost three or four times more than
when it was passed. And I remember reading years ago that Medicare was predicted was going to cost $12 billion after the first 25
years; instead, it cost almost 10 times that much, and now it costs
four times more than that. So all these Federal medical programs
have been low-balled on the front end. And what I dont understand is how we are going to add many millions of people who were
previously uninsured and now millions more receiving notices saying that their premiums are going out the window so much that
they are not going to be able to afford those premiums, so we are
going to add all those millions.
These costs, it seems to me, are inevitably going to explode. Dr.
De Rugy, what do you say about that?
Ms. DE RUGY. I agree with you. A lot of these programs, independently of the social benefit that we assign them, are
unsustainable, whether we like them or not. Medicare, Social Security, Medicaid, these are programs that are extremely expensive.
And then you add on top of it the ACA. We already have a big debt
problem, but it is going to explode.
And I wanted to add something about what you said. Yes, the
private insurance industry was extremely supportive because they
were going to benefit immensely from it. When you have a law that
mandates that everyone buys insurance, that means millions more
customers for the insurance industry. And I would bear to also say
that in this instance, because of the way the law was drafted, the
law did pick winners and losers. Because of the requirement by
Obamacare, it meant that younger and healthier Americans were
going to have to face much higher premiums.
Chairman ISSA. The gentlemans time has expired.
Dr. Winston, if you need to answer.
Mr. WINSTON. I just want to add one point just to round out
what you were saying. I think it is important to keep in mind that
a large source of the increase in medical expenditures is due to
technological change and innovation. Obviously, we are not getting
the same products that we once got. That is a good thing, and that
is coming from the private sector, to a large extent. The challenge
for Government is how is it that they intervene in ways that spur
technological change in innovation without excessive increases in
cost, as opposed to impeding technological change and innovation.
That is really what we need to do.
Mr. DUNCAN. Well, I will close just by saying that we are having
great difficulty funding the programs that we already have.
Thank you, Mr. Chairman.
Chairman ISSA. I thank the gentleman.
We now go to the gentleman from Massachusetts, Mr. Tierney.
Mr. TIERNEY. Thank you, Mr. Chairman.
So, Dr. Calabria, I just want to note that you were here for a
hearing on the rollout of healthcare government. Your own testimony says, I am not an expert on healthcare, is that right?
Mr. CALABRIA. That is correct.
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Mr. TIERNEY. Okay. And in your statement you also say, Doing
nothing should always be an option or, rather, leaving the problem
to be solved by the voluntary private sector. Is that accurate as
well?
Mr. CALABRIA. Absolutely. You can always make something
worse.
Mr. TIERNEY. Thank you.
Dr. De Rugy, in your written testimony you focus mostly on the
Department of Energys loan guarantee program and then you say,
Government solutions are not only unlikely to solve most of our
problems, they often make problems worse. Is that fair?
Ms. DE RUGY. It is fair.
Mr. TIERNEY. Okay.
Dr. Winston, you talked mostly about transportation and infrastructure programs. Let me quote from your testimony: I am much
less familiar with empirical assessments of Government services
and programs to pursue social goals. Is that an accurate quote?
Mr. WINSTON. Yes.
Mr. TIERNEY. Thank you.
So, Dr. Thomas, you actually work in the public health field, you
have the background that you just stated on that, so I want to
focus a little bit on you and talk about this concept that the free
market always works better. Before Horace Mann, how was the
private sector doing on educating most students in this Country?
Ms. THOMAS. In some parts of the Country, literacy rates were
high, but in many, many parts of the Country there is no education
available to the vast majority of the population.
Mr. TIERNEY. And before Social Security and Medicare, what was
the poverty rate among seniors?
Ms. THOMAS. I do not specifically know, but I know that it was
significant and that health costs were a major part of that poverty.
Mr. TIERNEY. And how did Social Security and Medicares enactment affect that?
Ms. THOMAS. We need to remember Medicare and Medicaid are
parts of the Social Security Act. Together those things lifted many,
many millions of Americans out of poverty. And I think it is important to add that minority groups, who had been hardest hit by poverty rates, were also dramatically helped by those programs.
Mr. TIERNEY. And I would assume that since the recession, the
fact that 95 percent of all economic gains have gone to the top one
percent is not what you would think is a great symbol of the private market working effectively for everybody?
Ms. THOMAS. No, I would not.
Mr. TIERNEY. Okay. So the premise by the Majority seems to be
that Governments ability to effectively or inability to effectively design, implement, and administer large-scale projects and programs.
Let me talk to you a second about the GI Bill. Is it your understanding that the GI Bill has been a success?
Ms. THOMAS. Absolutely. My own father went to Georgia Tech on
the GI Bill.
Mr. TIERNEY. And, in fact, on November 8th of this year we had
the one millionth recipient of the GI Bill that was passed after September 11th, 2001.
Ms. THOMAS. Yes.
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Mr. TIERNEY. And basically I would think that the Government
has been administering that program fairly well, in your opinion?
Ms. THOMAS. Yes.
Mr. TIERNEY. Some $30 billion in new GI Bill benefits have been
awarded to Iraq and Afghanistan veterans since 2009, is that about
right?
Ms. THOMAS. Yes.
Mr. TIERNEY. So you would think that the GI Bill has been worth
the effort of the Federal Government in its expenditures?
Ms. THOMAS. Yes. And it helped the overall market to work better because it brought so many more skilled people into the workforce.
Mr. TIERNEY. Now, the intervention of Government in 1966
through Medicare, that saw some problems with the rollout of that
program, similar to what we are hearing today?
Ms. THOMAS. Very similar.
Mr. TIERNEY. And in 1937 we could say the same about Social
Security, correct? People were all sorts of critics about the program;
it was going to cause too much swelling of bureaucracy, it was
going to slow the economy?
Mr. TIERNEY. And Part D, Medicare Part D talked about their
being a marred rollout. Republicans, in fact, at that point in time,
however, were saying, look, it is a marred rollout, but it has
glitches; we should work closely with CMS to get the problems resolved on that.
Ms. THOMAS. Yes.
Mr. TIERNEY. All right. And I would protest that if we work
closely with the glitches in the Affordable Care Act, we can get
those resolved as well, would you agree?
Ms. THOMAS. I agree. I think the Affordable Care Act is very
much in the tradition of these other programs that you have mentioned and that we are going to look back even a year from now
and see that the Affordable Care Act is a good investment and is
working.
Mr. TIERNEY. So, historically, are you familiar with any program
that the Republicans proposed during this discussion of the Affordable Care Act that would cover the 40 million Americans that were
otherwise uncovered?
Ms. THOMAS. I am not.
Mr. TIERNEY. Are you aware of any proposal that would have
affordably allow people to stay on their parents policy until they
are 26 if they are not otherwise covered?
Ms. THOMAS. No.
Mr. TIERNEY. Are you aware of any Republican suggestions of
how they would affordably make sure that insurance companies
didnt shut off your health insurance with an annual or lifetime cap
on coverage?
Ms. THOMAS. No. The insurance companies had done none of this
on their own.
Mr. TIERNEY. And the same is true with preexisting conditions,
is that correct?
Mr. TIERNEY. I yield back. Thank you.
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I now ask unanimous consent that 15 letters sent to health insurance companies related to broken promises and when did they
know that they were going to be canceling individuals under the
Affordable Care Act be placed in the record. Without objection, so
ordered.
Chairman ISSA. We now go to Mr. Meadows, who came back just
in the nick of time.
Mr. MEADOWS. Thank you, Mr. Chairman.
Dr. Thomas, I know that my friend and colleague was asking you
about Republican proposals, and hopefully this is not something
how many people do they estimate will still be uninsured under
ACA, do you know?
Ms. THOMAS. I do not have an exact figure.
Mr. MEADOWS. Do you have an approximate figure? You are a
historian.
Ms. THOMAS. Yes.
Mr. MEADOWS. So you dont know trends?
Ms. THOMAS. Well
Mr. MEADOWS. So, under ACA, how many people willyou were
able to quote how many were going to be covered, so I would assume that you would know how many are going to be left uncovered.
Ms. THOMAS. I think there will still be approximately 5 to 10 percent uncovered.
Mr. MEADOWS. Well, according to estimates, some 30 million people will still be left uninsured, is what the current estimates have.
Some 30 million people would still be without insurance even
under ACA.
Ms. THOMAS. And may I ask where those estimates are from?
Mr. MEADOWS. CBO. So if you look at the CBO, they are saying
almost 30 million people will still not be covered. So this is not a
solution that will have everybody covered.
Ms. THOMAS. Mm-hmm.
Mr. MEADOWS. So I want to askyou have gone and you have
had a number of options here as we have started to look at history.
Can you speak to the fact that we have trends right now where,
under current Medicaid and Medicare, that the reimbursements
are not covering the costs? Would you agree with that? To provide
those healthcare coverage. Does Medicaid cover all the costs of actually providing that service, reimbursement to physicians?
Ms. THOMAS. No, it does not.
Mr. MEADOWS. All right. So does that distort the market?
Ms. THOMAS. The rates of
Mr. MEADOWS. Of reimbursement.
Ms. THOMAS. Well, I can speak from personal experience. When
you get an explanation of benefits from a medical visit
Mr. MEADOWS. All right, maybe let me change and rephrase the
question. Do you ever hear complaints from physicians where they
dont want to take new patients because the reimbursement is not
adequate to cover their costs? That is an easier question.
Ms. THOMAS. Yes. However, in some cases, over time Medicare
has reimbursed at higher rates than private insurance.
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Mr. MEADOWS. Okay, but lets look at Medicaid. I am in a rural
areas, so we get a lot of Medicaid patients, and what I am finding
is a lot of physicians dont want to take Medicaid patients because
the reimbursement doesnt even cover their costs, hospitals included. Would you agree with that?
Ms. THOMAS. I would, but I would also say that without the Medicaid program, there would be far more people who wouldnt get
care at all.
Mr. MEADOWS. All right. Is there not a Federal law that says everyone has to get care?
Ms. THOMAS. There is a Federal law
Mr. MEADOWS. Is there a Federal law, yes or no?
Ms. THOMAS. Care in the emergency room, yes.
Mr. MEADOWS. Right. So it is a matter of how we get that care
to them in terms of the efficiency of that. Because right now there
is a law, if I show up, regardless of my ability to pay, at an emergency room, I can get care, is that correct?
Ms. THOMAS. Yes.
Mr. MEADOWS. That is a Federal law. So what we are talking
about is the efficiency, as Dr. Winston talked about earlier, is what
is the most efficient way to deliver that healthcare, is that not correct?
Ms. THOMAS. Yes.
Mr. MEADOWS. All right. So in doing that, from a historical perspective, are there major inefficiencies in Government delivery of
services, whether they be medical or anything else? Are there inefficiencies there?
Ms. THOMAS. Certainly.
Mr. MEADOWS. All right. So has the private sector historically
done a more efficient job of providing services, whether they be
medical or not? Have they historically done a better job of providing a more efficient delivery, historically speaking? You are
under oath.
Ms. THOMAS. You are talking about all of the private sector in
all parts of the economy?
Mr. MEADOWS. I am saying historically speakingyou are talking about trends. Historically speaking, is the private sector a more
efficient mode of delivering goods and services, whether they be
medical or not, historically speaking, have they been more efficient? You are a historian.
Ms. THOMAS. I dont think I can answer that question because it
is so broad.
Mr. MEADOWS. Okay. Well, my time has expired. I yield back.
Chairman ISSA. We now go to the gentleman from Virginia, Mr.
Connolly.
Mr. CONNOLLY.
Mr. CONNOLLY. I thank the chairman. And I am delighted to
hear my friend from North Carolinas concern about uncovered citizens. Hopefully, North Carolina and Virginia will both come to
their senses and broaden Medicaid so that those people will have
coverage.
By the way, let me follow up on my friends last question to you,
Dr. Thomas. Historically, since World War II, can you give us a
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single industrialized country where the government has not intervened and provided healthcare to its citizens?
Ms. THOMAS. No. There are none.
Mr. CONNOLLY. There are none. So that efficient private sector
somehow just didnt work in any industrialized country. The
United States is actually laying way behind others in the industrialized world in the comprehensiveness of its coverage until the passage of the ACA. Would that be an accurate historical statement?
Ms. THOMAS. That is absolutely true.
Mr. CONNOLLY. And you are under oath, as my friend reminded
you.
Ms. THOMAS. Yes.
Mr. CONNOLLY. Thank you.
Ms. THOMAS. That is absolutely true.
Mr. CONNOLLY. Dr. De Rugy, my friend the chairman characterized Brookings as a left-of-center organization in contradistinction
to your center, the Mercatus Center, which he characterized as
right-of-center. Would you accept that characterization?
Ms. DE RUGY. No. Actually, we are really independent.
Mr. CONNOLLY. Really independent.
Ms. DE RUGY. We spend a great amount of time criticizing both
sides of the aisle.
Mr. CONNOLLY. And lots of donors like the Koch brothers, for example, is that correct?
Ms. DE RUGY. We have lots of individual donors.
Mr. CONNOLLY. Including the Koch brothers?
Ms. DE RUGY. Yes. It is well known.
Mr. CONNOLLY. Yes. You dont come here as a healthcare expert,
you come here as an economist, is that correct?
Ms. DE RUGY. That is correct.
Mr. CONNOLLY. And your position is, a priori, that any Government involvement distorts the marketplace.
Ms. DE RUGY. It does.
Mr. CONNOLLY. It does. So you consider Medicare a distortion?
Ms. DE RUGY. It does, yes.
Mr. CONNOLLY. Medicaid?
Ms. DE RUGY. Medicaid.
Mr. CONNOLLY. Veterans Administration?
Ms. DE RUGY. We may be willing to put up with distortion to
achieve some social goal.
Mr. CONNOLLY. No, I am not askingdont jump ahead. I am
asking the question here. So is TRICARE, medical TRICARE, military TRICARE healthcare a distortion in the marketplace, based on
your philosophy?
Ms. DE RUGY. All Government intervention introduced distortions.
Mr. CONNOLLY. And that includes the Veterans Administration
healthcare system.
Mr. CONNOLLY. It does. And I see Dr. Calabria agreeing with
you. Does the Centers for Disease Control, is that a distortion? It
is a big Government program; monitors public health.
Ms. DE RUGY. It does, but again
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Mr. CONNOLLY. Again, maam, I am just trying to see is it consistent with your philosophy that it represents a distortion. We will
hold off for a minute, normatively, whether it is good or bad.
Ms. DE RUGY. Government intervention introduced distortions.
Mr. CONNOLLY. And you would include the National Institutes of
Health in that rubric?
Mr. CONNOLLY. And the Federal Drug Administration.
Ms. DE RUGY. It does, certainly.
Mr. CONNOLLY. Now, all right, are some of those things necessary, despite their distortive effect?
Ms. DE RUGY. Yes.
Mr. CONNOLLY. Which ones do you think are unnecessary?
Ms. DE RUGY. So I think there are a lot. For instance, I dont
think the Government should be involved in education; that is a
State and private function. I mean, there are a lot of things.
Mr. CONNOLLY. No, no. I am talking about the healthcare system. Would you abolish the CDC and let the private sector monitor
public health?
Ms. DE RUGY. I think there is an important role for the Government to try to prevent epidemics, true epidemics. But the CDC
does a lot of things that actually it shouldnt be doing.
Mr. CONNOLLY. Okay. So there are some thingsyou would go
granular and pick what functions you like and what you dont.
Ms. DE RUGY. Yes.
Mr. CONNOLLY. Even though anything you pick is distortive, by
your definition.
Ms. DE RUGY. Yes. Government intervention
Mr. CONNOLLY. Excuse me, but because of time. Is it your position that absent the Government, even in functions you might
deign to approve of, the private sector could do it better, and
should?
Ms. DE RUGY. Not necessarily.
Mr. CONNOLLY. Not necessarily.
Ms. DE RUGY. Because, as I said, there is some function that we
may want the Government to do, even if it introduces some distortions. And as Dr. Calabria has said, the private sector doesnt do
everything efficiently.
Mr. CONNOLLY. Right. By the way, there was a debate here earlier about the Government setting prices for Medicare. Do you actually know how the process is set for which are recommended and
approved procedures? Who does that? Who recommends that to the
Government, do you know?
Ms. DE RUGY. I dont know
Mr. CONNOLLY. It is actually a committee.
Ms. DE RUGY. Actually, it is a committee made of doctors.
Mr. CONNOLLY. That is right.
Ms. DE RUGY. And I think I remember a report recently that actually highlighted the fact that a lot of what they were doing was
boosting prices in area where the service could be delivered at a
lower price.
Mr. CONNOLLY. That is the private sector doing that.
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Ms. DE RUGY. But this is how one of the ways that the Government introduces distortion, is it gives incentive to the private sector to try to get as much as it can from the Government.
Chairman ISSA. I would ask unanimous consent the gentleman
have an additional minute. Without objection.
Well, of course, philosophically, Dr. De Rugy, there is no end of
that; that is a horse that left the barn a long time ago. Gosh, if
we want to talk about economic distortions and the Governments
role, lets talk about agriculture.
Ms. DE RUGY. I agree.
Mr. CONNOLLY. Lets talk about nuclear.
Ms. DE RUGY. I agree. I agree.
Mr. CONNOLLY. All nuclear power in the United States came
from Federal research and dollars.
Now, is it your contention that this big Government distortive effect extends to pharmacological research? Because it is my understanding that, by and large, all basic research in the United States,
and this is not new, is done by the Government. It is the commercialization of that basic research is when the pharmaceutical firms
come in, but they do not fund basic research, nor are they going
to.
Ms. DE RUGY. Some of the distortions that the Government introduces by actually picking and choosing which areas are going to be
funded, which areas should be researched while others may not.
Mr. CONNOLLY. Yes, that is true.
Ms. DE RUGY. And the Government has a knowledge problem.
Mr. CONNOLLY. Excuse me. Pharmaceutical companies do that
too, except their motivation is commercial value, as opposed to the
health value.
Ms. DE RUGY. Actually, I actually think
Chairman ISSA. This is a wonderful discussion, but I have a feeling it could go back and forth for a very long time.
Mr. CONNOLLY. Mr. Chairman, I want to thank you for extending
my time. I just wanted to highlight that. I think this is a really
important debate because it is a very fundamental one in the
United States when people say why cant we all get along? Because
we have fundamental differences philosophically about the role of
Government. And while I respect Dr. De Rugy and I certainly love
George Mason University, which is entirely within my district, I
couldnt disagree with her more, fundamentally. Just as you pointed out you disagree with Dr. Thomas, I also disagree with Dr. De
Rugy and her philosophy.
Chairman ISSA. Thank you. If I can enter a colloquy quickly, I
actually think that all of the panelists have said, in one way or the
other, that Government is necessary. They all know it causes market distortion and they all have differing views at the level of Government intervention. It could be that you disagree with some of
the levels. I am sure they disagree with some of the levels I would
achieve.
Mr. CONNOLLY. Yes.
Chairman ISSA. By the way, one of my major constituents produces botox, which was a Government-funded orphan drug that if
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not for the Government looking at a very rare disease, probably
would not be the blockbuster success it is in other areas.
Mr. CONNOLLY. That is right.
Chairman ISSA. So I think we all know that basic research is important. Hopefully here today we are talking about the 16 to 18 to
20 percent of GDP is that is there a better way to allocate those
resources.
Mr. CONNOLLY. Mr. Chairman, I couldnt agree with you more,
and I actually commend you. I think we have actually put together
a panel here that has been very stimulating. It highlights some of
our differences, but it also asks some provocative questions that
need to be asked, and I thank the chairman for putting it together.
Chairman ISSA. Thank you. And then we are going to get back
to FITAR and real IT reform together. Thank you.
We now go to the gentleman from Michigan.
Oh, I am sorry.
Ms. THOMAS. I wanted, if I may, to add that it is not always just
the Government that distorts the market, that sometimes private
actors can also drive up prices. And in healthcare a very good example of that is competition among private hospitals, private forprofit hospitals for highly expensive and complex medical equipment that one hospital buys the million dollar piece of equipment
and they are the only hospital in town with it until the hospital
next door buys it also, and really there is only enough patients to
justify one such purchase. So that is one way that private
healthcare drives up prices sometimes.
Chairman ISSA. The allocation of resources in healthcare is so
complex that, to a great extent, the theme of today is is it so complex that neither the public nor the private sector have been able
to do it.
I apologize, Dr. Winston, but it have taken too much time of everyones.
The gentleman from Michigan.
Mr. BENTIVOLIO. Thank you, Mr. Chairman, and thank you for
holding an important hearing.
The founders of this Nation understood exactly what some of our
witnesses have all expressed: Government makes decisions poorly
because too often politicians and bureaucrats do not have the same
incentives that the citizenry has.
I certainly dont wish to offend my colleagues here, but our Government is inherently made up of those with at least a little hubris. After all, it takes some hubris to believe that you should be
the representative of the sovereign people of the United States. In
fact, I have even heard of people campaigning for office simply to
say that they are Congressman, rather from the hope of protecting
peoples rights. A hubristic style trumps substance in service of the
people.
Unfortunately, Mr. Chairman, that hubris in our leaders sometimes gets out of control and leads to disaster. The Presidents
healthcare reform is the only major reform ever passed by one
party over a bipartisan opposition. And, boy, Obamacare is certainly turning into a disaster.
I thank the witnesses for their enlightening testimony.
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Dr. De Rugy, you talk a lot about special interest groups and the
lack of incentives for politicians to spend taxpayer money wisely,
stemming from the average citizen not really feeling the pain from
having the collective money of the Nation wasted. Could this come
from taxpayers simply not realizing how much money is being
spent on what departments in Government?
Ms. DE RUGY. That is one of the reasons. I mean, one of the ways
the Government expands is by concentrating benefits of Government intervention and spreading the cost thin and wide. So that
is one of the reasons why we dont always see that cost. We also
dont necessarily see the distortions, or even when we feel them it
is hard to track it back to a particular Government intervention.
What is interesting about the ACAand I am going to make a prediction and we will see whether I am correctis even when the
website is completed, it is possible that the Administration is not
going to get the benefit and the hurray that people are going to feel
because actually it is a program that is designed the opposite way,
like the benefits are spread somewhat widely to an audience who
may not actually be very vocal about how great it is, while the
costs are highly concentrated and visible to some, which will continue to be vocal.
Mr. BENTIVOLIO. Thank you. Do you think that if every taxpayer
received a receipt explaining where their tax money went would be
useful in granting politicians here in Washington more incentive to
act more wisely?
Ms. DE RUGY. More transparency, certainly would be necessary.
For instance, I would be very happy to see which part of my taxes
go to farm subsidies.
Mr. BENTIVOLIO. I couldnt agree with you more.
With that, thank you very much. I yield back.
Chairman ISSA. Would the gentleman yield?
Mr. BENTIVOLIO. Yes.
Chairman ISSA. We have had a lively discussion, and I am sure
we are going to continue to, but, Dr. Winston, in your opening remarks you really did touch on the fact thatand I think it is something that Dr. Thomas also saidmonopoly and monopolistic type
behavior, distortions in the market not just by Government, but the
inherent distortions that occur in both for-profit and not-for-profit
hospitals. I happen to have two not-for-profit hospitals nine miles
apart along its a State highway, but it is built like an interstate,
and I cant get them to put one machine that is not emergency-related in one and share; they just dont do it. Isnt that part of the
problemand I will go to Dr. Winston and maybe back to Dr.
Thomasis that healthcare has built, with a system that has very
little to do with market forces, meaning that market forces already
didnt work well in healthcare before we started funding a system
that didnt work well from a standpoint of supply and demand? In
other words, cash is not king; the consumer is not educated to
make a buy-in; prices are not transparent; cost-effectiveness is not
easy to discover.
Dr. Winston?
Mr. WINSTON. Yes, that is right. There is not distortions, but
there are wedges, if you will. It is not a simple market, you go to
a store, you buy something. You are going through a doctor, you
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are going through insurance, so on and so forth. So these wedges
make efficient, smooth operations
Chairman ISSA. I am going to ask a closing question for all of
you. If this committee, the committee of transparency in Government spending, if we concentrated our efforts related to the Affordable Care Act on mandating transparency in healthcare so the consumer knew more and the public knew more, would we be well
spent in then driving, through market awareness, better distribution of dollars and, thus, more efficiency? Any opinion?
Ms. THOMAS. Yes.
Chairman ISSA. That is Econ 101, so just go ahead.
Mr. CALABRIA. Certainly, transparency would help, but you have
to get the incentives right, too.
Mr. WINSTON. Incentives are, I think, the critical thing. Information is one thing, but still people have to have incentives and firms
have to be able to enter, so on and so forth.
Chairman ISSA. I know people want to buy the best healthcare.
Hopefully we can also create incentives for them to buy it at the
lowest possible price. Thank you.
We now go to the gentleman from Illinois, Mr. Davis.
Mr. DAVIS. Thank you very much, Mr. Chairman. You know, I
believe that a good way to measure the greatness of a society is by
how well it treats its young, how well it treats its elderly, and how
well after it looks after those who have some difficulty handling
their affairs effectively themselves.
Dr. Thomas, as a historian at Johns Hopkins, I am certain that
you have some insight into the question of whether or not the Federal Government, as I have heard questioned, is able to administer
large-scale programs effectively.
Ms. THOMAS. Yes.
Mr. DAVIS. I have heard comparisons between the Federal or the
Government and the private sector. So I would like to ask you
about the Medicare program, which was signed into law by President Johnson in 1965.
Mr. Chairman, I ask unanimous consent to enter into the record
an article that appeared in The Washington Post on May 17th of
this year.
Chairman ISSA. Without objection, so ordered. I love The Washington Post.
Mr. DAVIS. Yes, it is a great paper.
Mr. DAVIS. The article is entitled, When Medicare launched, Nobody Had Any Clue Whether It Would Work. Dr. Thomas, I would
like to read an excerpt from this article and then get your response. Here is what it says: Medicare in these days, an incredibly
popular program. Americans overwhelmingly oppose cutting it. No
politician would consider repealing it. Most think providing health
insurance to all Americans over 65 is worth both the trouble and
the cost. That was not always true. Back in 1966, as Medicare was
just about to launch, nobody knew whether the new program would
provide benefits to millions or fail completely.
Dr. Thomas, based on this reporting, there was trepidation in
1966 with the rollout of the Medicare program. Is that correct?
Ms. THOMAS. That is absolutely correct.
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Mr. DAVIS. Well, the article describes how the American Medical
Association ran ads across the Country denouncing the program as
the beginning of socialized medicine, and many people who were
unfamiliar with the program were suspicious of it. Is that correct?
Ms. THOMAS. Certainly.
Mr. DAVIS. The article also describes the implementation effort.
It says that the Government launched project Medicare Alert, with
thousands of Federal workers charged with educating people and
helping them enroll in the program. Is that correct?
Ms. THOMAS. Yes. They had to go door-to-door to try to reach
people, of course, before the Internet, who might not know about
the program and make sure they knew they were eligible.
Mr. DAVIS. Means they were serious. One of the biggest challenges of that era
Ms. THOMAS. They even asked forest rangers to go out in the
rural areas.
Mr. DAVIS.was with hospitals in States that did not want to
provide healthcare services to black Americans. I know that this
has been a focus of some of your research and some of your writing.
Can you tell us a little bit about how this problem was addressed?
Ms. THOMAS. Yes. I would say that one of the greatest moral failures of the private health system and, unfortunately, for a time of
the public system as well was its segregation by race of patients
and outright denial of care to many Americans in minority groups,
so that death rates, disease rates, draft rejection rates, many measures were dramatically higher among African-Americans than
among whites, and there is racial disparity in life expectancy and
many other health measures that persist to this day.
Mr. DAVIS. And yet we have been able to overcome all of those
objections and all of those difficulties where now Medicare is considered a very popular program. Everybody who can get it wants
it, and I think it just takes a bit of time. It will take some time
with the Affordable Care Act and ultimately I think that Americans are going to feel the same way about the Affordable Care Act
that we now feel about Medicare.
Ms. THOMAS. I do
Mr. DAVIS. And I yield back.
The gentlelady may answer, if you were mid-sentence.
Ms. THOMAS. Just that it was the combination of the 1964 Civil
Rights Act and the Medicare-Medicaid Act of 1965 that definitively
integrated the American healthcare system, and it was much more
successful in healthcare and has produced some very good results.
Chairman ISSA. I thank you.
I now ask unanimous consent that the New Yorker article entitled GOP Healthcare.gov Too Fast Now be placed in the record.
Without objection, so ordered.
Chairman ISSA. We now go to the gentleman from Arizona, Dr.
Gosar.
Mr. GOSAR. Thank you very, very much.
Dr. Thomas, just as a background, I am a dentist for 25 years,
okay? This is going to be very important to kind of keep track of
this. Is Medicare financially sustainable as is?
Ms. THOMAS. No.
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Mr. GOSAR. Is Medicaid financially stable as is?
Ms. THOMAS. No.
Mr. GOSAR. Is Obamacare financially stable as is?
Ms. THOMAS. I cant answer that question.
Mr. GOSAR. Its a no. Is Romneycare financially viable as is? No.
Ms. THOMAS. I dont know.
Mr. GOSAR. No. I mean, you are a historian. You better know.
You are very flippant with the statistics, and I am about details.
And Romneycare isnt financially stable. The only reason it has
lasted so long is it is from a rich State. That is it. So arent they
very close to go to a single payer?
Ms. THOMAS. I am sorry, is Romneycare close to a single payer?
Mr. GOSAR. Massachusetts.
Ms. THOMAS. Yes.
Mr. GOSAR. Yeah. That is what I thought. That is how they keep
hinting in this way.
I am looking at three problem-solvers here, and that is what is
key about this thing, is that when you have a problem, you always
go to lowest common denominators to figure them out. Wouldnt
you agree?
Ms. THOMAS. I am not sure what you mean by lowest common
denominators.
Mr. GOSAR. Well, you figure out all the parts that are part of the
problem, you go to the lowest basis and you come up with core
principles and build upon simple simplicity. Wouldnt you agree?
Ms. THOMAS. Okay. Sure.
Mr. GOSAR. Would you agree, Dr. De Rugy?
Ms. DE RUGY. [Nonverbal response.]
Mr. GOSAR. Dr. Winston?
Mr. WINSTON. [Nonverbal response.]
Mr. GOSAR. Dr. Calabria?
Mr. CALABRIA. [Nonverbal response.]
Is it possible, the three of you, is that actually possible today in
the Federal Government to do that? Quick answer.
Mr. WINSTON. No.
Ms. DE RUGY. No.
Mr. GOSAR. I want to agree with you, because we talked about
monopolies, we talked about noncompetitive bids, we talked about
all sorts of things. Is there tort reform in this bill, Dr. De Rugy?
Ms. DE RUGY. No.
Mr. GOSAR. Is it part of the problem?
Ms. DE RUGY. I guess part of it.
Mr. WINSTON. Yes.
Mr. GOSAR. Dr. Calabria?
Mr. CALABRIA. [Nonverbal response.]
Mr. GOSAR. Hey, how about you, Dr. Thomas?
Ms. THOMAS. It is part of the problem, but politically
Mr. GOSAR. No, I dont care about politically.
Ms. THOMAS. Okay.
Mr. GOSAR. Because you know what? It has to be part of the solution here, okay?
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Number two is we brought up monopolies. Do you think that we
have handled, Dr. Thomas, the monopolies of insurance industries
properly in Obamacare? Ill give you a minute to catch that answer.
How about you, Dr. De Rugy?
Ms. DE RUGY. No, absolutely not.
Mr. GOSAR. Actually, the Federal Government is prohibited from
interceding in insurance companies by McCarran-Ferguson, is it
not?
Ms. DE RUGY. Yes.
Mr. WINSTON. Yes.
Mr. GOSAR. So do you see a need for actuarial tables? I mean,
1945 I see actuarial tables being a necessity; we didnt have good
computers back then. But today you have an algorithm, your own
facts, a computer, you should be able to do it on your own, dont
you think Dr. De Rugy?
Ms. DE RUGY. [Nonverbal response.]
Mr. WINSTON. Times change.
Mr. GOSAR. Absolutely.
Dr. Calabria?
Mr. CALABRIA. Yes.
Mr. GOSAR. So, I mean, one of the key principles here is that we
have a collusive environment, right?
Ms. DE RUGY. Yes.
Mr. GOSAR. Oh. Is any part of this bill talking about repealing
McCarran-Ferguson?
Mr. WINSTON. No.
Mr. GOSAR. Let me ask you, Dr. De Rugy, because my colleague
from Virginia asked a question. Government intervention would be
great here, because in this aspect the Federal Government now
intercedes and breaks up the monopoly, sends it back to the State,
would it be, Dr. De Rugy?
Ms. DE RUGY. Yes, it would be.
Mr. WINSTON. A quick point, if I could just say, is we are looking
to Government to correct distortions. There is too much emphasis
on the distortions it creates, but its main job is to correct the distortions. That is the problem we are having.
Mr. GOSAR. That is exactly, redirect it. So I am getting to this.
Dr. Calabria, do you want to comment on that?
Mr. CALABRIA. I would absolutely agree with that. We need to
allow competition, particularly across State lines, in terms of bringing competition to the insurance market.
Mr. GOSAR. Wow. I mean, I want to turn the insurance industry
free because they are harnessed right now.
Ms. DE RUGY. Or create a level playing field.
Mr. GOSAR. What is that?
Ms. DE RUGY. Create also a level playing field between employer
tax credit and individual market.
Mr. GOSAR. Thank you.
Dr. Thomas, can we treat out way out of this epidemic of
healthcare?
Ms. THOMAS. Can we
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Mr. GOSAR. Can we treat our way?
Ms. THOMAS. Treat? No. You have to prevent.
Mr. GOSAR. Oh, absolutely. So what we have actually done is,
what I have shown you right here through distortions is, we have
actually priced primary care out of the marketplace. From 1965 on,
what we started doing is taking the lowest common denominator,
which is the private family doctor, and priced them out of the market so that you werent making any money. And that my good
friend highlighted about the committee that redresses CMS, but
CMS redirects the reimbursement rate for medical.
There is a reason I brought up dentistry. Can you tell me about
the inflationary aspects of dental costs over 30 years versus medical costs over 30 years? Inflationary. Which one is higher?
Ms. THOMAS. Dental costs have stayed much more in line with
inflation.
Mr. GOSAR. That is right. And medical more than 20 times. What
is the thing that is interesting about the two healthcare models,
one has lots of government, almost entirely Federal Government,
and one has very little Federal Government. Wouldnt you say that,
Dr. Thomas?
Ms. THOMAS. Yes. But the nature of dental care is largely preventive and not anywhere near as expensive as the medical care
system, so I dont think you can compare apples to oranges.
Mr. GOSAR. Oh, yes we can. Oh, absolutely. It is paradox that we
do this, because in the dental model there is many more primary
care physicians than there are specialists. Today, what we have
done is reinversed the whole payment model to be a specialist, not
a primary care doctor. That is key.
Mr. WINSTON. If I could just quickly add one additional point to
what you are getting at. Dental schools and medical schools. Dental
schools are closing, and there is less availability of dentists. That
too is affecting the market. I would say a similar kind of restriction
also exists in medical care in the sense that you still have an entry
barrier and a license to provide service and I think the combination
of those things are also increasing the costs, and there is another
area where Government could intervene to reduce distortions.
Mr. GOSAR. Oh, absolutely.
Chairman ISSA. I thank the gentleman. Suffice to say that the
Affordable Care Act does not have preventive dentistry in it, which
perhaps was one of the mistakes.
With that, we go to the gentlelady from New Mexico.
Ms. LUJAN GRISHAM. Thank you, Mr. Chairman. I really appreciate this hearing. I think it is demonstrating on both sides of the
aisle these principles: one, the healthcare system is incredibly complicated, so complicated, in fact, that, when each of us are identifying situations, historical facts, spending trends, it is very difficult
to say whether that is a private market issue in and of itself or a
Government issue. Some of the best programs that are most costeffective are where the Government and the provider system,
whether that is local or Federal, are effective, that partnership is
effective. When it is not effective, you have all kinds of things that
we can point to, and members have done this throughout the hearing, demonstrated that the private market, the insurance market
on its own certainly hasnt solved any of these problems and has
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gotten increasingly more expensive, so has the provider system.
The Government systems we can talk about, they have had fluctuations in productive outcomes and not so productive. Some States
have great public health outcomes, some States do not.
So, for me, I think that I sort of changed how I want to approach
the panel. One, I agree with the chairman that we need to do much
more in transparency, and being able to, apples to apples, talk
about those effective investments, whether that is policy, regulatory, oversight, transparency, marketing, consumer protection; it
is all of those.
I do want to point out that in the conversations that we have had
about life expectancy, what we havent talked about is what sort
of investments public health has gotten at the same time. Because
if you look at sustainable effective, that is both in terms of
amounts and what they are directed at in public health, because
States also make significant public health policy decisions, although the bulk of their money largely comes from the Federal
Government because States havent picked up that role because in
the United States we dont put a lot of credence in public health,
which is the largest effort we could take to do productive, low-cost
preventative care. And while there are incentives to do that in public and community health in the Affordable Care Act, we will have
to see whether it is, frankly, enough, because like in all of the
things that we have done in the United States, we have seven,
eight, nine, ten independent systems of care that we try to then
roll into one and try to make sense out of it, and I dont think that
you can. And where we go from here I think this committee and
others are going to have to play a much more significant role in
getting that addressed.
So maybe, given that I only have a couple minutes left, I just
want to sort of re-ascertain a couple of things from the panel. One,
that the private market, by itself, in all of those aspects that I
identified, insurance companies, providers, hospitals, for-profit, notfor-profit, by itself has not been able, globally, to do any of the
things that I just described; provide access, lower cost, improve outcomes, provide consumer protection, and affect policy in a way that
would be meaningful from oversight to better regulatory reform.
True? Not true?
Ms. THOMAS. True.
Mr. CALABRIA. I would say not true.
Ms. LUJAN GRISHAM. Okay.
Mr. WINSTON. Not true.
Ms. DE RUGY. I would say not true.
Ms. LUJAN GRISHAM. All right. And I believe that it is true, and
I have 30 years. I dont have any of your expertise from your particular aspects, but I navigate healthcare even in this job every single day, and no matter what, it is getting increasingly more complicated. And I would submit that if any of you havedoes anybody
on the panel have a family member on Medicare or Medicaid?
Ms. THOMAS. Yes.
Mr. CALABRIA. Yes.
Ms. DE RUGY. My family members are in France.
Ms. LUJAN GRISHAM. So arguably better than Medicare. So the
two that have family members on Medicare, if Medicare was gone,
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would you be able to finance that family members healthcare on
your own?
Ms. THOMAS. Absolutely not. Both my parents died of cancer and
their care was subsidized completely by Medicare, and they would
not have been able to have that care without Medicare.
Mr. WINSTON. I dont think we know what the system would look
like without Medicare. So you are asking me for an imaginary
world that I dont have an option of really choosing.
Ms. LUJAN GRISHAM. Right. And I am almost out of time, but
also the reality is, and that is my point, that we know that none
of these systems are sustainable as they are. We know that without
Medicare the private market rates would be much higher because
we would have to figure out what we would do with all of those
elderly sick people who would also be increasingly accessing emergency rooms and hospitals without any primary or preventative or
routine care. And that is before you get to their acute care or
chronic care issues that are covered by Medicare.
We have to start figuring out how all of those systems impact the
private market, or the lack thereof. The sicker people are in the
private market, the higher those costs are. The higher those costs
are, limited access to providers. Rural and frontier States are a
whole different issue.
So now that I am out of time, and I really appreciate the chairmans support, I would love to see this committee do lots more in
transparency. I would love to talk about the models for dental care.
There is in fact oral healthcare in the Affordable Care Act; it is pediatric. We are really going to have to talk about better integration
for all of these models, and I would support the chairman and this
committee spending much more time in healthcare issues such as
this hearing than not. So thank you very much.
Mr. GOSAR. [Presiding.] You get no qualm from me at all.
I would like to acknowledge the gentleman from Oklahoma, Mr.
Lankford.
Mr. LANKFORD. Thank you, Mr. Chairman.
Thank you all for the time and the conversation. Can we agree
on a principle that is economic-wide, I guess, or economy-wide, and
that is fair competition is better for the consumer than price controls?
Ms. THOMAS. Yes.
Ms. DE RUGY. Yes.
Mr. LANKFORD. Can that translate into healthcare?
Ms. THOMAS. Yes.
Ms. DE RUGY. Yes, it can.
Mr. LANKFORD. So then the challenge is how does that get managed. If the goal is the benefit to consumer, the patient at this
point, and to provide fair competition and to provide multiple
voices and as much transparency as you can have in it, there are
some issues that are coming up currently right now with our system that get in the way of that. For instance, I know the chairman
mentioned earlier this issue of testing reimbursement. If you do,
right now, in our system, according to CMS, if you do a histology
test, a test for skin cancer or whatever it may be, outside of a hospital, your reimbursement is 50 percent less than it is inside a hospital. So the incentive there is is to do all the testing for the hos-
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pitals inside because their rates werent cut, for the big hospitals;
they were for every small lab all around the Country, by 50 percent. Does that promote fair competition?
Is it cheaper to do that test in a hospital or is it less expensive
to do that test in an outside lab, typically? I would submit it is
probably more expensive to do it in a hospital. I dont know that
anyone would disagree with that. They are also reimbursed now 50
percent more. So there is this, again, leaning in to the larger hospitals.
In the Affordable Care Act, it caps the growth of physician-owned
hospitals. It set a date for them and said however many rooms you
have at this point, you have to remain at that. So physician-owned
hospitals are at a permanent disadvantage to the hospital down the
street forever. Is that fair competition? Does that benefit the consumer? Does that help us in price and cost and benefit consumers?
I dont hear anyone saying that would benefit the consumers. No?
Ms. THOMAS. There have been some problems with physicianowned hospitals that are part of why that measure was passed, but
I wont
Mr. LANKFORD. Was the problem with the patient orbecause
seven of the ten top hospitals in the Country are physician-owned
hospitals, even still right now. But all of them will be capped in
the days ahead and refused to grow; they cant expand. So while
patients may choose to do that, the Affordable Care Act steps in
and says, no, I dont want more competition; I want less competition. To me, that doesnt benefit the consumer; that doesnt benefit,
in this case, the taxpayer, even, who is now paying the bill on it,
where we are going to pay a higher price at a hospital than we
would in the lab. We are going to pay a higher price in this facility,
this one. And I am not denigrating those, it just is a step into it
to say we want less competition rather than more, and that doesnt
seem to work anywhere else.
Durable medical equipment right now, there was a decision by
CMS to have fewer companies provide durable medical equipment
because it is easier to oversee fewer companies. A large central government cant oversee thousands of durable medical equipment
companies, so you need to have fewer companies so the Federal
Government can oversee that for fraud.
Right now, our payments out to companies where we cant verify,
or individuals, not fraud, just inaccurate payments, we are topping
$50 billion in inaccurate payments through Medicare and Medicaid
at this point. Can you make that more efficient by putting the controls for that closer to the payment location, closer to those individuals? So that may be a State that oversees that, rather than the
Federal Government, instead of having to track it from Washington, D.C. Does it make it more efficient to oversee those things
from a State or local municipality, or to try to do it all from a central location?
Ms. DE RUGY. The State would make more sense.
Mr. LANKFORD. So if we are going to go after inaccurate payments, is it better to make those decisions closer, and check for
fraud and check for inaccuracies closer, rather than a centralized
location? It seems like everybody is onboard with that. These are
some of the challenges that we have.
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While we can talk about some of the healthcare issues, there is
a basic principle of economics that we want fair competition and we
want to increase competition, and the Affordable Care Act is reducing the number of opportunities out there, reducing the number of
places, so we are actually reducing the amount of competition and
we are saying, every area of the economy, free and fair competition
works well except in healthcare, where we have to have more price
controls, because that is different.
In Oklahoma City right now we have two hospitals that have all
of their prices online for their procedures. It started with one hospital that did it. And the push to get all your prices online has now
pushed another hospital to say, okay, we will put all of our prices
online as well, and be able to detail out. What was interesting, the
first hospital that did it, I talked to the gentleman that runs the
hospital, he said we were surprised when we put all of our prices
online. Guess who came first? The Canadians. The Canadians came
first to our hospital. We suddenly became a spot for medical tourism because they were tired of waiting six months in Canada for
a procedure, so they would fly to Oklahoma City, have the procedure done there, when they knew exactly what the price was and
to be able to fly home.
It is the same thing that is happening right now in our Veterans
Administration. I have veterans call my office all the time. It takes
six months for them to get a knee replacement or they could cross
the street and go to a fantastic hospital, OU Medical Center, and
get it done on Tuesday. But for some reason we have this concept
that we have to do price controls and have to do central control because this is healthcare, when in everything else it seems to work
well with free and fair competition. We have to find a way to do
this.
Integris Hospital in Oklahoma City is one of the best transplant
hospitals in the world; fantastic facility, incredibly well run. People
come from all over the place to come to it because of the quality
of the services and the openness of what they do. We have to be
able to push back on some of this.
With that, I yield back.
Mr. GOSAR. I want to take off on that for a second. Could you
explain to me, Dr. Thomas, why a procedure done out in a family
doctors procedure under Medicare is billed under Medicare Part A,
but then the same procedure by a physician under a hospital is
billed under Medicare Part B? You cant defend that. And that is
what is happening. We are allowing, willy-nilly, these rules to be
unequivocally violated right and left. It is the same procedure.
Buildings, each office has their own space to have to look at in
overhead. So there is no reason why you have to allow hospitals to
get reimbursements that sometimes double the price of a Medicare
Part A aspect.
One other thing that I wanted to highlight in your earlier testimony. It is not just about emergency rooms, is it, about access to
care? I thought that was under federally qualified health centers,
that your ability to pay could not stem you from not getting treatment. Is that true? Federally qualified health centers have a sliding fee scale in which they have to see you, but not based upon
your ability to pay. It is. I mean, I served kitty-corner from one for
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many, many years. So there are more opportunities out there than
meets the eye.
The gentleman from California, Mr. Cardenas.
Mr. CARDENAS. Thank you very much, Mr. Chairman. I would
like to thank the panel for availing yourselves to this committee so
that we can hopefully improve on our understanding of what is
going on with healthcare in our Country.
But there has been a lot of discussion today, and I guess rightfully so, because the hearing title is The Limitations of Big Government, the Rollout of Healthcare.gov. So a lot of discussion has been
about Government and whether or not Government has a role. But
earlier in a discussion, as a result of a question from one of my colleagues, the three non-healthcare expert panelists, all of you
seemed to agree that private sector is more efficient than Government when it comes to providing services and/or systems to Americans. Is that consistent with what your answers are today?
Mr. WINSTON. When the goal is to provide an economically efficient product or service, yes. You have to be very clear on what you
are trying to do. In other words, the market is not great at necessarily providing some specific targeted service to a particular individual who cant pay for it. The market may not do that. So,
again, you have to be very clear on what your objective is. But generally, if you are talking more about the efficient production and
provision of goods and services, yes, I think the evidence is overwhelming that the market is superior for Government. In fact, Government rarely corrects those problems.
Mr. CARDENAS. Any of the other panelists want to clarify?
Mr. CALABRIA. I would pretty much agree with that and clarify
the point that certainly the market, I think, has proven itself to be
of lower cost and have more innovation. I think it is incredibly important to parse out that a lot of times what we are talking about
is an income problem. And again, as I said earlier, all resources
have cost. If someone has zero income, that is not a market failure;
they cant afford those goods. You could make the same thing about
Government. If you had a group of people with zero income, obviously they cant pay taxes to support Government either. We dont
call that a Government failure. So I do think we need to separate
out the difference between are we talking about a problem that is
purely of poverty? Are we talking about a failure of the healthcare
system? And those are two separate issues and I think we combine
them, quite frankly.
Ms. DE RUGY. I agree with what has been said, but I would like
to add that Government very often, even when there is, lets say,
we see a role like providing healthcare for low-income people who
couldnt get it on their own, doesnt do that very well either. I
mean, we have been talking about expanding Medicaid, but there
has been no discussion about health outcome for people who are in
Medicaid. And a lot of the things that I have read, whether it was
the Oregon study, it is like it is not a desirable outcome, or it could
be improved; and I think we need to also talk about outcomes
versus just providing delivery.
Mr. CARDENAS. Well, I just wanted to clarify. Fortunately, all
three of you do provide a service when it comes to the exercise of
trying to understand where Government should or should not be
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playing a role. However, the fundamental problem that we have in
this Country with the private sector is that the private sector has
the right to ignore who they serve and where they draw the line
at how much they are going to charge or not serve at all. Yet, in
our Government, in this Country, in many cases the Government
has passed legislation and created laws that say we are not going
to ignore. For example, an extreme case is when somebody shows
up to an emergency room in this Country.
I dont know how they do it in other countries, it is a big world,
but in this Country, if somebody shows up in the emergency room,
that provider of service, private or public, is required to stop the
bleeding, regardless of the cost and regardless of the ability to pay.
And that is the fundamental difference that I have with having a
discussion that tries to have a purity of discussion about how Government doesnt have a role in XYZ, yet at the same time the private sector would do a better job or perhaps would provide better.
But the fundamental problem that we have is, especially when it
comes to healthcare, the private sector has the right, insurance
company A has the right to tell person B if they approach that
company and say I would like to apply for insurance, they have the
right to say, mm-mm, we checked all of what we provide, we cannot provide service for you, we are not going to insure you. They
have the right to do that.
And fundamentally we have anywhere between 40 to 50-plus million people in this Country who, some of them, fall into that category that, no matter how hard they are going to try, the private
industry is not going to provide for them; and that is where the Affordable Care Act is trying to thread that needle and saying is
there a way in which, in this great Country, we can actually provide that to some of those 40 to 50 million people, and not all, to
some of those 40 to 50 million people that on the natural, as the
system is before the Affordable Care Act is in full bloom, that those
private sector corporations have the legal right to say, sorry, we
dont have a policy for you, go to the next place or do whatever you
wish, but dont come here.
Dr. Thomas, is that an accurate portrayal of what one of our dilemmas is right now in this Country, that we are trying to tackle?
Ms. THOMAS. Yes.
Mr. CARDENAS. I am out of time, so, Mr. Chairman, they are welcome to answer.
Mr. GOSAR. The witnesses may answer if they would like to answer.
Mr. CARDENAS. Thank you very much.
Mr. WINSTON. What you are characterizing is something what we
call in economics merit goods. That is, these are goods that American society believes, goods and services, that people are entitled to
regardless of whether they can afford them or not.
I think what has changed over time is, yes, the Government can
step in and say, given democratic outcomes, we support the provision of these goods or services. We are now discussing and thinking
about, okay, given that that is the case, what is the least cost way
of providing those goods and services? I think people might think
it is through the Government. So the question about Medicare is
saying if we didnt have Medicare, what would happen to people?
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You have to construct what we call a counterfactual, that is, really
construct what would have happened in the absence of the policy.
So increasingly people are saying, Marty Feldstein is most notably,
saying if we had private health accounts, that might be able to
achieve the goals that Medicare is trying to achieve at lower cost.
And I think the questions we are raising about ACA and I think
the debate will follow, universal coverage, fine. What now is the
least cost way of doing that?
Mr. CARDENAS. Mr. Chairman, if I may, I appreciate that accurate portrayal of arriving at ideal solutions, but unfortunately we
live in a very dynamic, humanistic world where ideal solutions will
perhaps never be attained.
Thank you. I yield back.
Mr. GOSAR. I thank the gentleman.
I would like to recognize the gentleman from Pennsylvania, Mr.
Cartwright.
Mr. CARTWRIGHT. Thank you, Dr. Gosar. I want to thank the
chairman and Ranking Member Cummings for putting together
this fascinating panel and allowing this interesting philosophical
discussion that we have been having. Also thank you to my colleague, Mr. Cardenas, for weighing in on that as well.
For my own part, I will say I think the Government of the
United States of America has been responsible for some of the most
innovative and successful programs the world has ever seen. When
we talk about Social Security, we talk about a program that has
lifted people out of poverty, as you have said, Dr. Thomas. When
we talked about Medicare, same thing, a program that has enabled
regular people to avoid medical bankruptcy, to qualify for treatment, as in the case of your parents, Dr. Thomas. And so many
Americans depend on Social Security and Medicare. I will be an
unceasing advocate for both of those programs, as well as other
Federal programs.
Our interstate highway and rail system transports millions of
people daily, safely. The Environmental Protection Agency ensures
clean drinking water and breathable air for Americans. Our brave
soldiers in the military put together a program that is the envy of
the free world, our American military, our soldiers and sailors. The
Consumer Product Safety Commission ensures that Americans feel
secure in their purchases. The Federal grants, loans, and work
study funds provided to our students enable higher education to become a reality for millions of Americans.
And then when we get to this ACA, absolutely it has been a
rocky rollout and, in my view, we are going to have further work
to do on it. We may well be tinkering with the ACA for years to
come, but my view is and my prediction is that history will look
kindly back on the Affordable Care Act as just another in a long
line of examples of American greatness.
Dr. Thomas, I want to follow up with you. I would like to ask
you about Social Security a little bit. You touched on it. The implementation of that program was hugely controversial at the time, in
the 1930s, and not without its own challenges, but today, like
Medicare, it is obviously an extremely admirable, successful, and
popular program. I have an article here that was published on Oc-
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tober 28, 2013, and it is entitled What About Social Securitys Rollout.
Dr. Gosar, I ask unanimous consent that this article be inserted
into the public record.
Mr. GOSAR. So ordered.
Mr. CARTWRIGHT. Dr. Thomas, this article describes many of the
problems facing Social Security in its first several years, and it
compares them to what we are seeing now in the ACA. For example, the article says this: After the Nations major social program
finally became law, critics regularly blamed it for slowing the economy and a swelling of the Federal bureaucracy. Fierce congressional opposition led to the formation of a blue ribbon panel to
overhaul Social Security. Obamacare, in 2013? Not quite. It was
Social Security in 1937.
Dr. Thomas, it seems obvious, but would you agree that the implementation of a large-scale Federal Government program like Social Security takes time?
Ms. THOMAS. I would agree, and I would also add that anything
that is ambitious that will actually enact real change is bound to
encounter problems.
Mr. CARTWRIGHT. Well, I want to go on quoting the article. Created in 1935, the Social Security program took 40 years just to include all working Americans in its basic coverage. When old-age insurance program launched in 1937, barely more than half of the
labor force participated. A series of amendments to the Social Security Act gradually expanded the coverage and by 1979 it finally
reached over 90 percent of American workers.
Dr. Thomas, the history of Social Security implementation seems
to support the idea that the Government is in fact capable of effectively administering a large-scale program like this that helps millions and millions of Americans. Would you agree with that?
Ms. THOMAS. Yes. The administration of the program has evolved
over time, but is certainly working smoothly at this point, and Social Security has evolved over a period of more than 70 years. For
instance, the amendments to include domestic and agricultural
workers, to make sure that they were covered, they werent passed
until, I believe, 1950 because there was such political opposition in
the south previous to that, when the law was passed originally. So
over time new priorities are brought into the law that improve its
function.
Mr. CARTWRIGHT. And I say lets work together and improve the
ACA and make it work for us over time.
With that, I yield back, Dr. Gosar.
Mr. GOSAR. Well, I want to let Dr. De Rugy answer a question.
She wanted to answer one of your questions.
Ms. DE RUGY. What I wanted to say about Social Security was,
and that is one of the problems with Government, is like sometimes Government creates a program because there is an actual
need, and the problem is you then go back 60 years later and that
need may not be there for a majority of the people it serves, but
then the problem stays in place. And that is the case. Fifteen Federal agencies have run a state of seniors in America right now and
you can see that their conditions have dramatically improved, and
yet this program still serves everyone as if everyone is in poverty.
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The other thing I would add is that if Democrats like Social Security so much, why not try to reform it? This is a system that is
bankrupt. In 2035, and probably before, when the trust fund expires, the prediction is that benefits will have to be cut across the
board by 25 percent. The people who will be hurt the most are the
people, the seniors who, at the time, still actually are poor. So I
want to say if we think it is a program that provides a valuable
service to seniors who are poor, why not reform to make sure that
when that time comes they will not be the ones hurt the most?
Mr. GOSAR. Dr. Winston, did you want to make a comment?
Mr. WINSTON. No.
Mr. GOSAR. How about you, Dr. Calabria?
Mr. CALABRIA. I was going to add. Veronique touched on this, but
I do think we have talked about the benefits of Medicare, Social Security, and these programs, but again, as mentioned, I will echo
something that the gentleman from Illinois, Representative Davis,
said about the young and the elderly. Programs that leave trillions
of dollars of debt for the young to pay off, programs that make
promises to the elderly that cannot be kept, that is not compassion,
in my view.
Mr. GOSAR. That is creating cripples.
I just want to ask you, Dr. ThomasI have a few extra moments
and the privilege of sitting in the chairare we healthier as a Nation right now?
Ms. THOMAS. Healthier than when?
Mr. GOSAR. Oh, lets talk about the 1930s. Rising rates of diabetes? Was diabetes as high then as it is now?
Ms. THOMAS. We have dramatically improved life expectancy
Mr. GOSAR. So let me ask you another question. Compared to
other industrialized nations, how healthy are we? Lets compare diabetes.
Ms. THOMAS. Well, I can tell you off the top of my head that the
infant mortality
Mr. GOSAR. No, we are not comparing apples to apples here.
Ms. THOMAS. I am going to agree with you.
Mr. GOSAR. I want to talk to you about obesity.
Ms. THOMAS. Okay.
Mr. GOSAR. Lets talk about obesity. Lets not change the subject,
lets go directly to apples-to-apples. Obesity.
Ms. THOMAS. Fortunately, the obesity epidemic has leveled off
and is beginning to improve, but, yes, that is a major healthcare
problem.
Mr. GOSAR. I would disagree on that. Diabetes?
Ms. THOMAS. Also a major healthcare problem.
Mr. GOSAR. Absolutely. So I want to bring you back to talking
about
Ms. THOMAS. They are diseases of affluence.
Mr. GOSAR. What is that?
Ms. THOMAS. They are diseases of affluence.
Mr. GOSAR. I dont know about that. You know, good eating policy, I am one of those guys. I am Celiac Sprue, by the way, so I
am allergic to wheat and gluten, so that is why I am kind of the
incredible shrinking guy. But we have to have patient accountability in this process. For example, for me, as Celiac Sprue, I have
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a seven day greater chance of getting any type of lymphoma. Okay?
So what we want to do is have prevention. So what I want to see
is I want an insurance come to me and say, listen, Dr. Gosar, we
know that early detection of lymphoma is the best way and the
cheapest way, so we are going to give you some incentives to come
and have a physical twice during three years, and if you do that
we are going to give you a kickback for doing that. You
reincentivize good behavior. It is like our eating, our snack program. I have some problems with our snack program. Dont you?
All that sugary stuff on those? I mean, you are public health. Come
on, now.
Ms. THOMAS. I would definitely like to improve that, yes.
Mr. GOSAR. Okay, so tell me what is on the WIC program that
everybody shouldnt be on? Women, infants, and children; complex
carbohydrates, complex proteins. Why shouldnt we be all on that?
Ms. THOMAS. Well, some of us cant eat that without getting sick.
Mr. GOSAR. Name one. Name one diet that you wont get sick on.
I am cautioning you once again, this is my forte, so if it is good
enough for women, infants, and children
Ms. THOMAS. Give me some specific examples.
Mr. GOSAR. I am asking you for specific examples. You said
Ms. THOMAS. I dont have the WIC formulary in my head, I am
sorry.
Mr. GOSAR. Oh, it is complex proteins and complex carbohydrates, so there are no simple sugars, maybe outside of a few
fruit choices. I think if you are on government assistance, we
should be all on the WIC program. Dont you think? If it is good
enough for women, infants, and children, I am just telling you,
those are one of the groups that was highlighted today, one of the
weakest groups here, that if it meets a criteria of meeting that formulation for
Ms. THOMAS. But they have different nutritional needs than everybody else. I am not sure where you are going.
Mr. GOSAR. Not necessarily. No, not necessarily. Can you tell me
the public health mantra, was it a success in Indian Health Services? I mean, you heard about the integration for African-Americans. Tell me about the Indian Americans. It was a disaster. It has
not been great. In fact, part of the trust obligations from the Federal Government was to work in concert with the Tribes, not to dictate to them. Isnt it true that the Tribes have an option out of
ACA because of self-determination, and they are taking it? They
are actually building their own hospitals. They are doing their own
thing because they want to breed the aspect of prevention and patient accountability.
Ms. THOMAS. And you say the Indian Health Service has not
done that?
Mr. GOSAR. They havent. I mean, I am from Indian country. I
can tell you that right now. The Navaho Nation and the San Carlos
Tribe, they are all privatizing, because Government came in and
said these are the services we are going to give you, regardless of
what you want, we are going to do this accordingly, and it was a
failure.
Thirty percent of my patient base in my practice came to me to
pay for my services because they valued them. Because they could
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have got it free from the Federal Government and they refused.
There is something to learn from that experience there, and I hope
that you go back and look at your notes, because some of the things
you are citing arent exactly factual historically.
Last comments. Dr. De Rugy, from the standpoint of this hearing, is there anything that you would like to comment in regards?
Ms. DE RUGY. No. I mean, I think that we need to remember
that even when the Government is well intentioned, a lot of the
ways that it intervenes actually goes even against the goal that
they have set of themselves, and we also need to remember that
it always introduces distortion and that Government officials, unfortunately, have a great incentive to listen to interest groups.
Mr. GOSAR. So it is not about whether the Government is involved, it is a balance, wouldnt you say?
Ms. DE RUGY. Sorry?
Mr. GOSAR. Trying to find a balance of Government involvement.
Ms. DE RUGY. Well, I think one of the things that we have
learned is that Government fails, and one of the best ways to prevent them is to actually limit the purview of Government intervention.
Mr. GOSAR. And maybe hold people accountable for things poorly
done.
Ms. DE RUGY. Absolutely.
Mr. GOSAR. Dr. Winston, final comments.
Mr. WINSTON. My final comments are that an awful lot of the
discussion has been looking backward; there has been reference to
history, Medicare, Social Security, things done in the past. The
world changes, and I think it is probably more important to start
looking forward, the future, looking for new ways in which we want
to try to do things, recognizing that, yes, maybe in a different time
Government was effective in doing something, initiating, doing it,
but things change. And if there are other ways in which we can try
to achieve the goal we are trying to do it, particularly with the
market, we should be experimenting and be more open-minded to
the fact that we dont have to be wedded to the past and look for
new ways of doing things.
Mr. GOSAR. I like that aspect. You always have to look at your
past before you go forward, because you are doomed to repeat the
past if you dont.
Dr. Calabria.
Mr. CALABRIA. I will end with maybe summarizing a few points.
First of all, of course, I think sometimes there is a bit of a
strawman aspect to the market not being perfect, the Government
not being perfect. Of course, as we know, there are no perfect institutions; they all have their flaws, and I think we need to find the
better that works out of any of those institutions.
I will reiterate a point I made a couple times before, which is I
do think that there is a confusion between what is essentially a
poverty problem and a failure of various markets. If you have zero
income, you cant afford anything. That doesnt mean that all of
those markets are failing. And, again, the way to address that is
to try to address poverty directly, which I will say, as an aside, I
think the overwhelming evidence across countries and across his-
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tory is if you really, seriously want to reduce poverty, extending the
market is the way to do it, and creating wealth in that regard.
Finally, we often sort of hear a moral argument made. I will be
very clear that my preference oftentimes for markets is not simply
an issue of efficiency. But I believe that markets are, by and large,
based on consensus, where I believe it was the gentleman from Virginia made the point about us not getting along. Well, the part of
us not getting along is you can use the Government to force me to
do things I dont want to; whereas, in the marketplace, for me to
sell you something, I have to come to a price in agreement and
terms on which you agree. So my goal as a generality is how do
we try to build society more on consensus and cooperation, rather
than coercion.
Mr. GOSAR. And customer service.
Dr. Thomas, your last comments.
Ms. THOMAS. Well, I would agree with I believe it was Ms. Grisham who said that the health system works best when Government
and nonprofits and for-profits all cooperate in the most efficient
way, and that is what I am advocating. I also agree with Dr. Winston, who said times are changing, and even as a historian I dont
think that we can do things exactly the way they did in 1935. But
I think a sign that things really are changing is that the American
Medical Association, which has opposed every national health insurance proposal since 1939, in 2010, supported the Affordable
Care Act, and, in fact the AMAs executive vice president, Michael
D. Maves, admitted that we dont believe that maintaining the status quo is an acceptable option for physicians or the patients we
serve. I think that is a very important turning point that we are
at.
Mr. GOSAR. I dont think anybody will disagree that what we
have as status quo would work. I am here because of that. I just
dont think the solution that we have on the table works, because
we didnt get everything on the table put on the table. At that time,
the AMA represented about 18 percent of all physicians across the
Country, hardly a vote of acknowledgment. And I think they are
actually rescinding that aspect now; they dont particularly care
about that, if I am not mistaken. So statistics can be used a certain
way.
The last thing I would like to say is that when we look at problems, problem-solvings, we have to look at where our costs are
spent. You made a comment about we are spending a lot of money.
In Medicaid and Medicare, the dual eligibles are the ones we are
spending the most money on, and these are problem-solvings that
we want the best of the best. And there are two pools, there are
the seniors that are so poor with Medicaid and Medicare, and there
are the youngers that have real chronic conditions like multiple
sclerosis and that aspect. It is ingenuity that sets us free, and that
is why I came back to McCarron-Ferguson, okay? I want to turn
the insurance industry upside down. I want them to be revolutionized to compete for my dollars, because I want new incentive programs based on me, customer service. That is one of the things
that we have to get back to. Not Government dictated, but good
customer service; patient-centered, patient-friendly. When we put
all the market factors working on behalf of people, not making
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them cripples but to empower them to make health choices, they
win.
Ms. THOMAS. But how can you turn that insurance industry upside down without an outside force?
Mr. GOSAR. That is why I said McCarron-Ferguson.
Ms. THOMAS. Okay.
Mr. GOSAR. I want choice. My choices are very different, as I
elaborated, versus somebody elses. So breaking up the common denominator, if all of us are physicians here, we cant collude on
prices. Okay? But insurance companies do. Okay? So what I want
to do is I want to see the innovation within the insurance industry
and show me what I dont even know. They are the experts in that.
I am an expert in dentistry. I want them to show me what is possible, because I havent dreamed it yet. Neither have you; neither
has anybody here.
What I see at this panel is the people that bring the building
blocks of what you can envision as success, and we havent got it.
And what I think we saw from this panel is Government cant do
that. When you talk about monopolies, noncompetitive bidding
practices, Davis-Bacon, it goes on and on and on. I mean, look at
the bid process of this website. There was no competitive bid. Tell
me that a Davis-Bacon job is different than a private sector job. It
isnt. But it is 22 percent, on average, higher. It doesnt make any
sense today. So we should be big people today and ask that all the
pieces be put on the table. It is not a Republican, it is not a Democratic issue; it is an American issue, putting it out there and having a transparent discussion. We havent that. And until we do, we
are not going to get a solution.
Thank you very much for this panel and we stand adjourned.
[Whereupon, at 12:26 p.m., the committee was adjourned.]
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APPENDIX
MATERIAL SUBMITTED
FOR THE
HEARING RECORD
(93)
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ONe HUNDRED THlR'TEENTH CONGReSS
(ttongre1S1S of tfje llniteb ~tate1S

~Oll~t
ot l\tpre~entatibe~
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

2157 RAYBURN HOUSE OFl'ICE BUILDING
WASHINGTON, DC 2051s-E1143
........,. .'a-
......,
""'*-I'~
l"lp;q~. .-.~~
Opening Statement
Ranldng Member Elijah E. Cummings
Hearing on "The Roll Out of HealthCare.gov: The Limitations of Big Government"
December 4, 2013
Thank you, Mr. Chairman, and welcome to our witnesses here today. 1look forward to
an informative and spirited discussion.
According to the Chairman's invitation letters, today the Committee will eXamine "the
instilutionallJmitations on the efficacy of government action." And our case study will be the
rollout of the HealthCare.gov website. The flmdamental presumption underlying this hearing is
that the federal governmeut is somehow incapable of successfully administering large-scale
programs. In fact, the Republican staff briefing memo challenges "government's ability to
effectively design, implement, and administer large scale projects and programs."
The problem with this presumption is that it does not take into account the many
extremely successful government programs that have helped millions of Americans throughout
our history.
In 1935, President Roosevelt signed into law the Social Security Act-the centerpiece of
our social safety net. When it first launched, critics panned its confilsing procedures, and Jess
than half of the labor force participated. Over time, however, it has reached 90% of American
workers and has been expanded to cover the self-employed, to incillde dependent and survivor
benefits. and to provide for cost of living adjustme.nts.
Thirty years later, in 1965, Piesident Johnson signed Medicare into law. Like the Social
Security rollout, there were challenges initially, and the American Medical Association called it
"the beginning of socialized medicine." The federal government bad to negotiate with hospitals,
nursing homes, and insurance companies, and it had to coordinate with all SO states. Eventually,
93% of eligible seniors enrolled in Medicare, and the program has been expanded and improved
several times since then.
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Forty years aftet that, in 2005. President Bush signed into law the prescription drug
program under Part D of the Medicare law. Like Social Secudty and Medicare before it, this
drug program also exparienced challenges in its rollout. Newspaper headlines were dire, stating
"Confusion Reigns Over Drug Plans," "Not Ready for Prime Time," and "Prescription-Drug
Plan Part D Gets an Early 'F.'''
95
In all of these cases. early setbacks were resolved. critics were proved incorrect. and
these programs are now immensely popular with the American people. But more importantly.
they prevented out nation's seniors from dying penniless and homeless. They provide a basic
level of security to the American people where the prIvate sector failed to do so.
The same is true of the Affordtible Care Act. The private insurance market discriminated
for decades against people with preexisting conditions. Insurance companies threw people off
existing plans when they discovered evidence of previOUS illnesses that patients themselves did
not know about. But now, thanks td the ACA, millions of Americans who could not get health
insurance in the private market now have access to it.
In terms oftoday's hearing, I think everyone understands what is going on. The
Republicans want to use the initial challenges willl the HeslthCare.gov website to make a
broeder argument that the federal government cannot administer large-scale programs effectively
and that we are all better off leaving things to the private sector. But we have tried that, and it
simply does not work.
I believe the premise for today'a hearing is fundamentally flawed. Our country's
experience with Social Security in 1935. Medicare in 1965, and the prescription drug program in
2005 demonstrates that our governmentis fully capable of overcoming initial problems with the
implemeutation of programs that help millions of peol'le in their daily lives.
ThIs premise becomes even more absurd when you look at OU1' nation's broader history.
In the 19408. we mobilized our entixe colmtry-our people, our industry, and our worker&---m
defeat the Nazis and the Japanese in World War II. In the 1960s. we tapped the best and
brightest minds in government and the private sector to build a space program that put a man on
the moon for the first time in human history. Our government does not always work as well es it
should. but it is certainly capable of great things when there is a strong commitment to the
lmderlying goals we all share.
In the case of tho ACA, we all know that one component of the rOll01.1t-the
HeslthCare.gov website-did not work as it should have. But we also know from testImony
before this Cornmittee that another componenl-the complicated interagency data hub that most
experts worried about-worked much more smoothly. And that is II testament to the strong work
of the agencies and contractors involved.
As we go forward, I hope we can all work together to solve any problems that arise in
order to improve the program so it works effectively and efficiently. In that way. we can honor
the commitment we made in the Affordable Care Act to help people who could not get heslth
insurance to obtain it now. I look forward to hearhlg from loday's witnesses.
Contact: Jennifer Hoffman, COlUmunications Director, (202) 2265181.
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96
Alexander Fleming. VViktredia, the free ency;iopedia
12i4f13
Sir Alexander
F~eming,
fRSE,
1881-11 March 1955) was a
k~own
Sir Alexander Fleming

fRSE, fRS, fRCS(Engl
(6 August
dlsco\-Bries are the erzymslysozyme in
1923 and
the all~ibiotic 5ubstanceoeniciiiin from the
moultfPenicf/litlm notetumin1928, for 'wHcl1M
shared the Nobel?ti"e in Physiology Of'
Medicine in 1945 with Howard ;:ioray .and Ernst
Boris GhainJ11
Contents [hide]
1 Biograpoy
1.1 EarlyHfe and education
L2 Research
1.2.1 Work before penidilln
1.2.2 .A.cddenta! discovery
Died
11 March 1955 (aged 73)
1.2.3 Purification and stab!!isation
London, England
Citizenship United Kingdom
1.2.4 Antibiotics
1.3 Personal life
Natjonality
Scottish
1 ..1. Death
Fields
Bacteriology,lrrrruno!ogy
2 Honours, awards and achievements
Alma mater
3 See also
4 Bibliography
5 References
6 External links
Known for
Oscovery of peniclilin
Notable
awards
Nobel Prize In Rlysiology or

rvledidne (1945)
Signature
Ctt.;~
Early life and education
[edit]
Fleming was bam on 6 August 1881 at Lochfteld farm near DaMI, in Ayrshire, Scotland. He
was the third of the four children of farmer Hugh Fleming (1816-1888) from his second
marriage to Grace Stirling Morton (1846-1928), the daughter of a neighbouring farmer. Hugh
Fleming had four su",,,n9 children from his first marriage. He was 59 at the time of his
second marriage, and died when Alexander (known as Alec) was se""n.
Fleming went to Loudoun Moor School and DaMI School, and eamed a two-year scholarship
to KilmarnocK Academy before mo"ng to London, where he attended the Royal Polytechnic
Instilution)2] After working in a shipping office for four years, the twenty-year-old Fleming
inherited some money from an uncle, John Fleming. His elder brother, Tom, was already a
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97
'"3;,... e: :o h:. yo",~~" ';~'''9 ,hal ~e /o!I<>w t~e '""'" c~ , e .... AM .O itI
1903. toe ),<:unge ' ':'Iexander eo.'\Ol:ed al S, fl.ar/ s !;Os"la Mec'Cai S C1:X, ,n ~~~~",~:'n.
he quali~Od ""Ih an ~'E::S dog'" from tM . chool W-'h di.:inctioc ;"1900.
p~ySiC<"" .c, ~
Fleming hbO been .. ~<il al .;" II>e L o"~n S:: I:i, h R..,,,e'>1 d ,he VOl~nt .. r F:;.-ce since
1900,! ' ! I nd I'IaC been I "",,,,toe< 01 the ,;~. eM > al tM medic al sct.ooi, The caPtain 01 :~..
Clu~.
",fj.'llic retain Fleming i.n 'he learn . ugge. tOd to.o, M loin ,he research d<r""'~,,""'" a,
51 Mary'" _ e he be<:ame . .. ist. m *
:erloI<:>\l,.t to S~ Aln rot~ Wriiil" . a p<oo .....
in\QCcine tllera!, ond imm1JJlOlogy .... 1008. M gained. SSe dell'"'" with Gold Me~
.,Sacle:iclogy. &lid _ . llee l....... al S t M"'Y'S <mI. 1914, On
Decembo< 1915.
Flemir.g mamOd a \r.. """ n.... .. 5ara.~ Marion McElroy oIKir.al Coun:y M.yo. Il'el.....:!.
Flem>ng sef\O!(j througlIOuI Wood Wac I u a cs;>Ia;n in t/'oe
was Mer\1:or>ed irI "'s;>at:nes. !-Ie and marl\'
~al
of his coIl. ague.
Army rJ06cal
ec:.;.' , , 0<1
"""'Od in banletleld hospilals
at tM VieSlem ~rom in France. 11 1915 he relL.WT>ed 10 5 l Mary's Hospital. """"" he ""'S

elected Proles.OI 0/ Bact eriology oI lhe l.IMefs ity 01 Lor.<lcn in 1 9~a
Research
(ed;l ]
Work be lore penicillin [edil[

World War I. Fleming acli;e/y searche<j for ."t>-bacleria! &genIS . ha\Ong wilMsSed
Irorn s epsis resulting i-om mlee:ed W<M>dS. Antiseptics killed It>e
patients imm ~ defet>ce s mo:n e "ec1i\&~ tharlll>ey kined \he irn8ding bacteria. II> an
article I>e s ubmitted for tne medical journal The LltIlCer during W a1d War I, Fleming
described .... inOCnious ex~. which fie was able (0 CPnOOe1 as a result oI ltis <>I'T!
glaS$ t;:.IoMng s kills. I ~...tkh he e>plained ""y antiseptic. _
killing more sol<li"", (han
inleclion ~self <bing World W", I. An~Seplics ...ned """I on the svrt>ce. but deep.......-..:lS
te~ to shell'"~~frQm fhe antisec>lic agent. and ""';sec>lic. seemed (0
remo..e benetci!II agents prtdoced (hat ptQIected the pet,""l, in 1heSe case. at leasl as well
a. lhe~ ~ ~C1erla , and CIid notNng to I'ifnO\O! the baoll!ri8lh11t.....e oot ofraach.
SirAlm,oIh Wr;ghl s(rongl ~ s l4'POl1ed Fleming's finding but despile this . most """Y
physicians 0'0eI' the COOSSe of the war conliJ>Jed lo use anh>eplics ""'" ;., cases wkere lI>is
VoO'Sened the condition of (I>e pa(ienls
FoI~ng
lhe death 0( many so/diert.
Accide ntal
dis~ov .. ry
_e
(edil[
Main ~i<:II>' HislOI)I 01 ~ric lllin
"W""" 1
up
iust all..- dawn on 5eplembe<
28. 1928. I ce<1airiy~' plan to relOlulionise all

m&dieine tIy IlilCO\&flng t"" wOOd'. ! f$t antibk>lic.
Ot bacteria kiUer." FWning -.ld lat.". say. "Bull
s uppose lhal was e'8Ct~ ..nalldid.-I3J
By 1927. Fleming was in .... sliga.ting \he properties
0/ st~oc:oc:ci. lie was already wetl4<"""", tom

his e..-tier wort. and had cIeIeIoped a repula1iort
as a brilliant .... aarcltitr, biJlltis lIIboraIory W3!I
oil$(] .......idy , On 3 Sep1embet 1928. Fleming
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returned lo his Iabco;o\ory M\ing spent August an

I>oliday with his family , Belin Ie.~ng . he I'IaC stacked all III. cull ....... oIsta.,nylococci on a
98
A1e>ander Flemng - Wildpedia, the free ency:::!opeeia
12f4!13
Fleming
fDund that it prodLced a substance th3I killed a number
identified the mould as being from the
genus and,
j
it "mouldjufc;:;;" named the substance it released

laboratory
I'n
on"7
\vhlch Flemi:lg discoYBred and tested penicHlin is preserved 3S
Lsboratar:!
in St. Ma,j's Hospital. Paddington.
He in\f8stigated its posjtj\.<e anti-bacteria! effect on many organisms, and noticed that it
affected bacteria such as staphylococci and many other
causescarlet
and
pathogens that
but not ~yphoid fe'.AS'r or :)ara~yphdd
rever, which are caused by Gra'li-negat:ve bactena, for which he was seeking a cure at the
time. It also affected Neisseria g:;norrhoeae, which causes gonorrhoea although this
bacterium is Gram-negative.
Fleming published his disco""rf in 1929, in the British Journal of Experimental
Pathology,f 61 but little attention was paid to his article. Fleming continued his in""stigations,
but found that cultivating penicillium was quite difficult, and that after ha;jng grown the mould,
it was even more difficult to Isolate the antibiotic agent. Fleming's impression was that
because of the problem of producing it in quantity, and because its action appeared to be
rather slow, penicillin would not be important in treating infection. Fleming also became
con;jnced that penicillin would not last long enough in the human body (in vivo) to kill
bacteria effecti""ly. Many clinical tests were inconclusi"" probably because it had been
used as a surface antiseptic. In the 1930s, Fleming's trials occasionally showed more
promise,[7J and he continued, until 1940, to try to interest a chemist skilled enough to further
refine usable penicillin. Fleming finally abandoned penicillin, and not long after he did, Howard
Florey andErnst Boris Chain at the Radcliffe Inunnery in Oxford took up researching and
mass-producing it, with funds from the U.S. and British go",mments. They started mass
production afier the bombing of Pearl Harbor. By D-Day in 1944, enough penicillin had been
produced to treat all the wounded in the Allied forces.
Purification and stabilisation [edit]

In Oxford, Emst Boris Chain and Edward
Abraham discovered how to isolate and
concentrate penicillin, Abraham was the first to
propose the correct structure of
penicillin,18l19lShortly after the team published its
first results in 1940, Fleming telephoned Howard
Florey, Chain's head of department, to say that he
would be ;jsiting within the next few days. When
Chain heard that he was coming, he remarked "Good God! f thought he
w.3S
dead.
Nonnan Heatley suggested transferring the acll", ingredient of penicillin back into water by
changing its acidity. This produced enough of the drug to begin testing on animals, There
were many more people In""l",d in the Oxford team, and at one point the entire Dunn School
was fn\Olved in its production.
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en'Aikipedia,org!vJWfPJexanderJleming
99
12/4113
Chain; vithout Chain no
Antibiotics
Fleming's accidental discovery and isolation of
penicillin in September 1928 marks the start of
modem antibiotics. Before that, seVBral scientists
had published or painted out that mould
orpeniciffium sp. were able to inhlblt bacterial
growth, and even to cure bacteria! infections in

animal (Ernest Duchesne in 1897 in his thesis
"Contribution to the study of IAtal competition in
micro-organisms: antagonism between moulds
and mlcrobes",I11J or also Clodomiro Picado
Twight whose work at Institut Pasteur in 1923 on
the inhibiting action of IUngi of the "Penicillin sp"
genre in the growth of staphylococci drew little
fT"ethod slrri!ar to FJeoing's discovery
interest from the direction of the Inslitut at the

time). Fleming was the first to push these stutiies
further by isolating the penicillin, and by being motivated enough to promote his discolery at
a larger scale. Fleming also discolered lery early that bacteria deleloped antibiotic
resistance wheneler too little penicillin was used or when it was used for too short a
period.Aimroth Wright had predicted antibiotic resistance elen before it was noticed during
experiments. Fleming cautioned about the use of penicillin in his many speeches around the
world. He cautioned not to use penicillin unless there was a properly diagnosed reason for it
to be used, and that if it were used, newr to use too Httle, or for too short a period, since
these are the circumstances under which bacterial resistance to antibIotics develops.
Personal life
[edit]
The popular story[12] of Winston Churchill's father paying for Fleming's education after
Fleming's father saled young Winston from death is false. According to the
biography,Penicillin Man: Alexander Fleming and the Antibiotic Revolution by Ka,;n Brown,
Alexander Fleming, in a lette~13J to his friend and col/eague Andre Gratia,f14] described this
as "A v.ondrous fable." Nor did he sale Winston Churchill himself during World War It
Churchill was saled by Lord Moran, using sulphonamides, since he had no experience with
penicillin, when Churchill fell ill in Carthage in Tunisia in 1943. The Daily Telegraph and
the Morning Post on 21 December 1943 wrote that he had been saled by penicillin. He was
saled by the new sulphonamide drug, Sulphapyridine, known at the time under the research
code M&B 693, disco'Rred and produced by May & Baker Ltd, Dagenham, Essex - a
en.v.iklpedia.orgfV>.ikiJAjelGnder]!erning
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VerDate Aug 31 2005
416
100
12!4i13
Flemi!lg's first wife, Sarah. died in
ma's,,: :or:e,. After Sarahs
Death
[edit}
He was buried in St Paul's
In 1955, Fleming died at his home in London of a
Cathedra).L 17j
apparatus for preparing penicillin.
discovery of penicillin had changed the world of

modem medicine by introducing the age of
usefulantibiotics; penicillin has saved, and is still

sa,,;n9, millions of people around the worldV 8j
The laboratory at St Mary's Hospital where
Fleming discovered penicillin is home to
theFleming Museum, a popular London attraction.
His alma mater, St Mary's Hospital Medical
School, merged with Imperial College London in
Faroe Islands starrp cOl1Tl"enurating

Rerring
1988, The Sir Alexander Fleming Building on

theSouth Kensington campus was opened in 1998 and is now one of the main preclinical
teaching sites of the Imperial College School of Medicine,
His other alma mater, the Royal Polytechnic Institution (now the University ofWestminsterj
has named one ofits student halls of residence Alexander Fleming House, which is near
taOld Street.
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5'6
101
AleJGanderFlemng - WWperia, the tee enc)dopedia
1214113
Fleming, Florey and Chain jointly recei'ved the f\obel pr.ze in Medicine in 1945. According
to the rules of the Nobel committee a maximum of three people may share the prize.
Fleming's Nobel Prize medal was acquired by the National Museums of Scotland in 1989
and is on display afterthe museum re-opened in 2011.[19]
Fleming was a member 01 the Pontifical Academy of SCiences. P)
Fleming was awarded the Huntenan Professorship by the Royal College of Surgeons of
England.
Fleming was knighted, as a Knight Bachelor, by king George VI in 1944,IZJ
He was made a Knight Grand Cross of the Order of Alfonso X the Wise in 1948.
In 1999, Time magazine named Fleming one olthe 100 Most Important People oithe
20th century, stating:
"
It was a OlScoWry thet would change the course of history. The actiw
ingredient In that mould, which Fleming named penicillin, turned out to be
an infection-fighting agent of enonnous potency. When it was finally
recognized for what it was, the most efficacious life-saling drug in the wond,
peniCillin would alter forewr the treatment of bacterial infections. By the
middle ofthe century, Flaming's discolery had spawned a
hugepharmaceutlcal Industry, churning out synthetic penicillins that would
conquer some of mankind's most ancient scourges,
including syphilis,gangrene and tuberculClSisJ21j
"
When 2000 was approaching, at least three large Swedish magazines ranked penicillin
as the mCISt important discowry of the millennium.
In 2002, Fleming was named in the BBC's list olthe 100 Greatest Britons following a
nationwide I<lteJ22]
" A statue of Alexander Fleming stands outside the main bullring in Madrtd, Plaza de Tores
de Las VentasJ231 lt was erected by subscription from grateful matadors, as penicillin
greaUy reduced the number of deaths in the bullring, [23J
Remingol<l namesU is a square named after Raming in the uniwrsltY area of
the Dej1icecommunltY in Prague.
A secondary school is named after him in Sofia, Bulgaria.
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In mid-2oo9, Reming was commemorated on a new series of benknotes issued by

theClydesda!e Bank; his image appears on the new issue of 5 notes.f241
91006 Fleming, an asteroid in the Asteroid Belt, is named after Fleming.
102
Washington Monthly
Tbe Best Care Anywbere
Ten years ago, veterans hospitals were dangerous, dirty, and scandal-ridden. Today. they're
producing the highest quality care in the country. Their turnaround points the way toward
solving America's health-care crisis.
By Phillip Longman
Phillip Longman diseusses his book. Best Care Anywhere, with Paul Glastris, Editor in Chief of
the Washington Monthly. Longman's book was based on this January/February 2005 Washington
Monthly Article.
uick. When you read "veterans hospital," what comes to mind? Maybe you recall the
headlines from a dozen years ago about the three decomposed bodies found near a
veterans medical center in Salem, Va. Two turned out to be the remains of patients who
had wandered months before. The other body had been resting in place for more than 15 years.
The Veterans Health Administration (VHA) admitted that its search for the missing patients had
been "cursory."
Or maybe you recall images from movies like Born on the Fourth ofJuly, in which Tom Cruise
plays a wounded Vietnam vet who becomes radicalized by his shabby treatment in a crumbling,
rat-infested veterans hospital in the Bronx. Sample dialogue: "This place is a fuckin' slum!"
By themid-1990s. the reputation of veterans hospitals had sunk so low that conservatives
routinely used their example as a kind of reductio ad absurdum critique of any move toward
"socialized medicine. II Here, for instance, is Jarret B. Wollstein, a right-wing activist/author,
railing against the Clinton health-care plan in 1994: "To see the future of health care in America
for you and your children under Clinton's plan," Wollstein warned, "just visit any Veterans
Administration hospital. You'll find filthy conditions, shortages of everything, and treatment
bordering on barbarism."
And so it goes today. If the debate is over health-care reform, it won't be long before some free.
market conservative will jump up and say that the sorry shape of the nation's veterans hospitals
just proves what happens when government gets into the health-care business. And if he's a true
believer, he'll then probably go on to suggest, quoting William Satire and other free marketers,
that the government should just shut down the whole miserable system and provide veterans with
health-care vouchers.
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Yet here's a curious fact that few conservatives or liberals know. Who do you think receives
bigher-quality health care. Medicare patients who are free to pick their own doctors and
specialists? Or aging veterans stuck in those presumably filthy VA hospitals with their
antiquated equipment, uncaring administrators, and incompetent staff? An answer came in 2003,
when the prestigious New England Journal ofMedicine published a study that compared
103
veterans health facilities on 11 measures of quality with fee-for-service Medicare. On all II
measures, the quality of care in veterans facilities proved to be "significantly better."
Here's another curious fact. The Annals ofInternal Medicine recently published a study that
compared veterans health facilities with commercial managed-care systems in their treatment of
diabetes patients. In seven out of seven measures of quality, the VA provided better care.
It gets stranger. Pushed by large employers who are eager to know what they are buying when
they purchase health care for their employees, an outfit called the National Committee for
Quality Assurance today ranks health-care plans on 17 different performance measures. These
include how well the plans manage high blood pressure or how precisely they adhere to standard
protocols of evidence-based medicine such as prescribing beta blockers for patients recovering
from a heart attack. Winning NCQA's seal of approval is the gold standard in the health-care
industry. And who do you suppose this year's winner is: Johns Hopkins? Mayo Clinic?
Massachusetts General? Nope. In every single category, the VHA system outperforms the
highest rated non-VHA hospitals.
Not convinced? Consider what vets themselves think. Sure, it's not hard to find vets who
complain about difficulties in establishing eligibility. Many are outraged that the Bush
administration has decided to deny previously promised health-care benefits to veterans who
don't have service-related illnesses or who can't meet a strict means test. Yet these grievances are
about access to the system, not about the quality of care received by those who get in. Veterans
groups tenaciously defend the VHA and applaud its turnaround. "The quality of care is
outstanding," says Peter Gayton, deputy director for veterans affairs and rehabilitation at the
American Legion. In the latest independent survey, 81 percent ofVHA hospital patients express
satisfaction with the care they receive, compared to 77 percent of Medicare and Medicaid
patients.
Outside experts agree that the VHA has become an industry leader in its safety and quality
measures. Dr. Donald M. Berwick, president of the Institute for Health Care Improvement and
one of the nation's top health-care quality experts, praises the VHA's information technology as
"spectacular." The venerable Institute of Medicine notes that the VHA's "integrated health
information system., including its framework for using performance measures to improve quality.
is considered one of the best in the nation."
If this gives you cognitive dissonance, it should. The story of how and why the VHA became the
benchmark for quality medicine in the United States suggests that much of what we think we
know about health care and medical economics is just wrong. It's natural to believe that more
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competition and consumer choice in health care would lead to greater quality and lower costs,
because in almost every other realm, it does. That's why the Bush administration-which has
been promoting greater use of information technology and other quality improvement in health
care-also wants to give individuals new tax-free "health savings accounts" and high-deductible
insurance plans. Together, these measures are supposed to encourage patients to do more
comparison shopping and haggling with their doctors; therefore, they create more market
discipline in the system.
104
But when it comes to health care, it's a government bureaucracy that's setting the standard for
maintaining best practices while reducing costs, and it's the private sector that's lagging in
quality. That unexpected reality needs examining if we're to have any hope of understanding
what's wrong with America's health-care system and how to fix it. It turns out that precisely
because the VHA is a big, government-run system that has nearly a lifetime relationship with its
patients, it has incentives for investing in quality and keeping its patients well-incentives that
are lacking in for-profit medicine.
Hitting bottom
By the mid-1990s, the veterans health-care system was in deep crisis. A quarter of its hospital
beds were empty. Government audits showed that many VHA surgeons had gone a year without
picking upa scalpel. The population of veterans was falling sharply, as aging World War II and
Korean War vets began to pass away. At the same time, a mass migration of veterans from the
Snowbelt to the Sunbelt overwhelmed hospitals in places such as Tampa with new patients,
while those in places such as Pittsburgh had wards of empty beds.
Serious voices called for simply dismantling the VA system. Richard Cogan, a senior fellow at
the Center on Budget and Policy Priorities in Washington, told The New York Times in 1994:
"The real question is whether there should be a veterans health care system at all." At a time
when the other hea1th-care systems were expanding outpatient clinics, the VHA still required
hospital stays for routine operations like cataract surgery. A patient couldn't even receive a pair
of crutches without checking in. Its management system was so ossified and top-<iown that
permission for such trivial expenditures as $9.82 for a computer cable had to be approved in
Washington at the highest levels of the bureaucracy.
Yet few politicians dared to go up against the powerful veterans lobby, or against the many
unions that represented much of the VHA's workforce. Instead, members of Congress fought to
have new veterans hospitals built in their districts, or to keep old ones from being shuttered.
Three weeks before the 1996 presidential election, in part to keep pace with Bob Dole's promises
to veterans, President Clinton signed a bill that planned, as he put it, to "furnish comprehensive
medical services to all veterans," regardless of their income or whether they had service-related
disabilities.
So, it may have been politics as usual that kept the floundering veterans health-care .system
going. Yet behind the scenes, a few key players within the VHA had begun to look at ways in
which the system might heal itself. Chief among them was Kenneth W. Kizer, who in 1994 had
become VHA's undersecretary for health, or, in effect, the system's CEO.
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A physician trained in emergency medicine and public health, Kizer was an outsider who
immediately started upending the VHA's entrenched bureaucracy. He oversaw a radical
downsizing and decentralization of management power, implemented pay-for-performance
contracts with top executives, and won the right to fire incompetent doctors. He and his team
also began to transform the VHA from an acute care, hospital-based system into one that put far
more resources into primary care and outpatient services for the growing number of aging
veterans beset by chronic conditions.
105
By 1998, Kizer's shake-up of the VHA's operating system was already earning him management
guru status in an era in which management gurus were practically demigods. His story appeared
that year in a book titled Straight from the CEO: The World's Top Business Leaders Reveal Ideas
That Every Manager Can Use published by Price Waterhouse and Simon & Schuster. Yet the
mostdrarnatic transformation of the VHA didn't just involve such trendy, 19908 ideas as
doWnsizing and reengineering. It also involved an obsession with systematically improving
quality and safety that to this day is still largely lacking throughout the rest of the private healthcare system.
Amenia's worst hospitals
To understand the larger lessons of the VHA's turnaround, it's necessary to pause for a moment
to think about what comprises quality health care. The flrst criterion likely to come to mind is the
presence of doctors who are highly tralned, committed professionals. They should know a lot
about biochemistry, anatomy, cellular and molecular immunology, and other details about how
the human body works-and have the academic credentials to prove it. As it happens, the VHA
has long had many doctors who answer to that description. Indeed, most VHA doctors have
faculty appointments with academic hospitals.
But when you get seriously sick, it's not just one doctor who will be involved in your care. These
days, chances are you11 see many doctors, including different specialists. Therefore, how well
these doctors communicate with one another and work as a team matters a lot. "Forgetfulness is
such a constant problem in the system," says Berwick of the Institute for Health Care
Improvement. "It doesn't remember you. Doesn't remember that you were here and here and then
there. It doesn't remember your story."
Are all your doctors working from the same medical record and making entries that are clearly
legible? Do they have a reliable system to ensure that no doctor will prescribe drugs that will
interact harmfully with medications prescribed by another doctor? Is anyone of them going to
take responsibility for coordinating your care so that, for example, you don't leave the hospital
without the right follow-up medication or knowing how and when to take it? Just about anyone'
who's had a serious illness, or tried to be an advocate for a sick loved one, knows that all too
often the answer is no.
Doctors aren't the only ones who define the quality of your health Care. There are also many
other people involved-nurses, pharmacists, lab technicians, orderlies, eVlln custodians. Anyone
of these people could kill you if they were to do their jobs wrong. Even ajob as lowly as
changing a bedpan, if not done right, can spread a deadly infection throughout a hospital. Each of
these people is part of an overall system of care, and if the system lacks cohesion and quality
control, many people will be injured and many will die.
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Just how many? In 1999, the Institute of Medicine issued a groundbreaking study, titled To Err is
Human, that still haunts health care professionals. It found that up to 98,000 people die of
medical errors in American hospitals each year. This means that as many as4 percent of all
deaths in the United States are caused by such lapses as improperly filled or administered
106
prescription drugs-a death toll that exceeds that of AIDS, breast cancer, or even motor vehicle
accidents.
Since then. a cavalcade of studies have documented how a lack of systematic attention not only
to medical errors but to appropriate treatment has made putting yourself into a doctor's or
hospital's care extraordinarily risky. The practice of medicine in the United States, it turns out, is
only loosely based on any scientifically driven standards. The most recent and persuasive
evidence came from study by Dartmouth Medical School published last October in Health
Affairs. It found that even among the "best hospitals," as rated by U.S. News & World Report,
Medicare patients with the same conditions receive strikingly different patterns and intensities of
care from one another, with no measurable difference in their wellbeing.
For example, among patients facing their last six months of life, those who are checked into New
York's renowned Mount Sinal Medical Center will receive an average of 53.9 visits from
physicians, while those who are checked into Duke University Medical Center will receive only
20.9. Yet all those extra doctors' visits at Mount Sinai bring no galn in life expectancy, just more
medical bills. By that measure of quality, many of the country's most highly rated hospitals are
actually its shoddiest.
Worse, even when strong scientific consensus emerges about appropriate protocols and
treatments, the health-care industry is extremely slow to implement them. For example, there is
little controversy over the best way to treat diabetes; it starts with keeping close track of a
patient's blood sugar levels. Yet if you have diabetes, your chances are only one-out-four that
your health care system will actually monitor your blood sugar levels or teach you how to do it.
According to a recent RAND Corp. study, this oversight causes an estimated 2,600 diabetics to
go blind every year, and anther 29,000 to experience kidney failure.
All told, according to the same RAND study, Americans receive appropriate care from their
doctors only about half of the time. The results are deadly. On top of the 98,000 killed by
medical errors, another 126,000 die from their doctor's failure to observe evidence-based
protocols for just four common conditions: hypertension. heart attacks, pneumonia, and
colorectal cancer.
Now, you might ask, what's so hard about preventing these kinds of fatal lapses in health care?
The airline industry, after all, also requires lots of complicated teamwork and potentially
dangerous technology, but it doesn't wind up killing hundreds of thousands of its customers each
year. Indeed, airlines, even when in bankruptcy, continuously improve their safety records. By
contrast, the death toll from medical errors alone is equivalent to a fully loaded jumbo-jet
crashing each day.
Laptop medicine
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Why doesn't this change? Well, much of it has changed in the veterans health-care system, where
advanced information technology today serves not only to deeply reduce medical errors. but also
to improve diagnoses and implement coordinated. evidence-based care. Or at least so I kept
reading in the professional literature on health-care quality in the United States. I arranged to
107
visit the VA Medical Center in Washington, D.C. to see what all these experts were so excited
about.
The complex' main building is a sprawling. imposing structure located three miles north of the
Capitol building. When it was built in 1972, it was in the heart of Washington's ghetto, a
neighborhood dangerous enough though one nursel spoke with remembered having to lock her
car doors and drive as fast as she could down Irving Street when she went home at night.
Today, the surrounding area is rapidly gentrifying. And the medical center has evolved, too.
Certain sights, to be sure, remind you of how alive the past still is here. In its nursing home
facility, there are still a few veterans of World War I. Standing outside of the hospitai's main
entrance, I was moved by the sight of two elderly gentlemen, both standing at near attention, and
sporting neatly pressed Veterans of Foreign Wars dress caps with MIA/POW insignias. One
turned out to be a survivor of the Bataan Death March.
But while history is everywhere in this hospitai, it is also among the most advanced, modern
heaith-care facilities in the globe-a place that hosts an average of four visiting foreign
delegations a week. The hospitai has a spacious generic lobby with a food court, ATM machines,
and a gift shop. But once you are in the wards, you notice something very different: doctors and
nurses wheeling bed tables with wireless laptops attached down the corridors. How does this
change the practice of meilicine? Opening up his laptop, Dr. Ross Fletcher, an avuncular, whitehaired cardiologist who led the hospital's adoption of information technology, begins a
demonstration.
With a key stroke, Dr. Fletcher puils up the medicai records for one ofhis current patients-an
87year-old veteran living in Montgomery County, Md. Normally, sharing such records with a
reporter or anyone else would, of course, be highly unethicai and illegal, but the patient, Dr.
Fletcher explains, has given him permission.
Soon it becomes obvious why this patient feels that getting the word out about the VHA's
information technology is important. Up pops a chart showing a daily record of his weight as it
has fluctuated over a several-month period. The data for this chart, Dr. Fletcher explains, flows
automaticaily from a special scale the patient uses in his home that sends a wireless signal to a
modem.
Why is the chart important? Because it played a key role, Fletcher explains, in helping him to
make a difficult diagnosis. While recovering from Lyme Disease and a hip fracture, the patient
began periodicaily complaining of shortness of breath. Chest X-rays were ambignous and
confusing. They showed something amiss in one lung, but not the other. suggesting possible lung
cancer. But Dr. Fletcher says he avoided having to chase down that possibility when he noticed a
pattern jumping out of the graph generated from the patient's scale at home.
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The chart clearly showed that the patient gained weight around the time he experienced shortness
of breath. This pattern, along with the record of the hip fracture, helped Dr. Fletcher to form a
hypothesis that turned out to be accurate. A buildup of fluid in the patient's lung was causing him
to gain weight. The fluid gathered only in one lung because the patient was consistently sleeping
108
on one side to cope with the pain from his hip fracture. The fluid in the lung indicated that the
patient was in immediate need of treatment for congestive heart failure, and, fortunately, he
received it in time.
The same software program, known as VistA, also plays a key role in preventing medical errors.
Kay J. Craddock, who spent most of her 28 years with the VHA as a nurse, and who today
coordinates the use of the information systems at the V A Medical Center, explains how. In the
old days, pharmacists did their best to decipher doctors' handwritten prescription orders, while
nurses, she says, did their best to keep track of which patients should receive which medicines by
shuffiing 3-by-S cards.
Today, by contrast, doctors enter their orders into their laptops. The computer system
immediately checks any order against the patient's records. If the doctors working with a patient
have prescribed an inappropriate combination of medicines or overlooked the patient's previous
allergic reaction to a drug, the computer sends up a red flag. Later, when hospital pharmacists fIll
those prescriptions, the computer system generates a bar code that goes on the bottIe or
intravenous bag and registers what the medicine is, who it is for, when it should be administered,
in what dose, and by whom.
Each patient also has an ID bracelet with its own bar code, and so does each nurse. Before
administering any drug, a nurse must first scan the patient's ID bracelet, then her own. and then
the barcode on the medicine. If she has the wrong patient or the wrong medicine, the computer
will tell her. The computer will also create a report if she's late in administering a dose, ffand
saying you were j11St too busy is not an excuse, ff says Craddock.
Craddock cracksa smile when she recalls how nurses reacted when they first were ordered to use
the system. ffOne nurse tried to get the computer to accept her giving an IV, and when it wouldn't
let her, she said, 'you see, I told you this thing is never going to worko' Then she looked down at
the bag." She had mixed it up with another, and the computer had saved her from a career-ending
mistake. Today, says Craddock. some nurses still insist on getting paper printouts of their orders,
but nearly all applaud the computer system and its protocols. "It keeps them from having to run
back and forth to the nursing station to get the information they need, and, by keeping them from
making mistakes, it helps them to protect their license." The VHA has now virtually eliminated
dispensing errors.
In speaking with several of the young residents at the VA Medical Center, I realized that the
computer system is also a great aid to efficiency. At the university hospitals where they had also
trained, said the residents, they constantly had to run around trying to retrieve records-first
upstairs to get X-rays from the radiology department, then downstairs to pick up lab results. By
contrast, when making their rounds at the VA Medical Center, they just flip open their laptops
when they enter a patient's room. In an instant, they can see not only all of the patient's latest
data, but also a complete medical record going back as far as the mid-1980s, including records of
care performed in any other VHA hospital or clinic.
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Along with the obvious benefits this brings in making diagnoses, it also means that residents
don't face impossibly long hours dealing with paperwork. "It lets these twentysomethings go
109
home in time to do the things twentysomethings like to do," says Craddock. One neurologist
practicing at both Georgetown University Hospital and the VA Medical Center reports that he
can see as many patients in a few hours at the veterans hospital as he can all day at Georgetown.
By this summer, anyone enrolled in the VHA will be able to access his or her own complete
medical records from a home computer, or give permission for others to do so. "Think what this
means," says Dr. Robert M. Kolodner, acting chief health informatics officer for the VHA. "Say
you're living on the West Coast, and you call up your aging dad back East. You ask him to tell
you what his doctor said during his last visit and he mumbles something about taking .a blue pill
and white one. Starting this summer, you'll be able to monitor his medical record, and know
exactly what pills he is supposed to be taking. "
The same system reminds doctors to prescribe appropriate care for patients when they leave the
hospital, such as beta blockers for heart attack victims, or eye exams for diabetics. It also keeps
track of which vets are due for a flu shot, a breast cancer screen, or other follow-up care--a task
virtually impossible to pull off using paper records. Another benefit of electronic records became
apparent last September when the drug-maker Merck announced a recall of its popular arthritis
medication, Vioxx. The VHA was able to identify which of its patients were on the drug within
minutes, and to switch them to less dangerous substitutes within days.
Similarly, in the midst of a nationwide shortage of flu vaccine, the system has also allowed the
VHA to Identify, almost instantly, those veterans who are in greatest need of a flu shot and to
make sure those patients have priority. One aging relative ofmine-a man who has had cancer
and had been in and out of nursing homes---wryly reports that he beat out 5,000 other veterans in
the New London, Conn., area for a flu shot. He's happy that his local veterans hospital called him
up to tell him he qualified, but somewhat alarmed by what this implies about his health.
The VistA system also helps to put more science into the practice of medicine. For example,
electronic medical records collectively form a powerful database that enables researchers to look
back and see which procedures work best without having to assemble and rifle through
innumerable paper records. This database also makes it possible to discover emerging disease
vectors quickly and effectively. For example, when a veterans hospital in Kansas City noticed an
outbreak of a rare form of pneumonia among its patients, its computer system quickly spotted the
problem: All the patients had been treated with what turned out to be the same had batch of nasal
spray.
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Developed at taxpayer expense, the VistA program is available for free to anyone who cares to
download it off the Internet. The link is to a demo, but the complete software is nonetheless
available. You can try it out yourself by going to http://wwwl.va.gov/CPRSdemoi. Not
surprisingly, it is currently being used by public health care systems in Finland, Germany, and
Nigeria. There is even an Arabic language version up and running in Egypt. Yet VHA officials
say they ate unaware of any private health care system in the United States that uses the
software. Instead, most systems are still drowning in paper, or else just starting to experiment
with far more primitive information technologies.
110
Worse, some are even tearing out their electronic information systems. That's what happened at
Cedars-Sinai Medical Center in Los Angeles, which in 2003 tumed off its brand-new,
computerized physician order entry system after doctors objected that it was too cumbersome. At
least six other hospitals have done the same in recent years. Another example of the resistance to
information technology among private practice doctors comes from the Hawaii Independent
Physicians Association. which recently cancelled a program that offered its members $3,000 if
they would adopt electronic medical records. In nine months, there were only two takers out of
its 728 member doctors.
In July, Connecting for Health-a public-private cooperative of hospitals, health plans,
employers and government agencies-found that persuading doctors in small- to medium-sized
practices to adopt electronic medical records required offering bonuses of up to 10 percent of the
doctors' annual income. This may partly be due to simple techno-phobia or resistance to change.
But the broader reason, as we shall sec, is that most individual doctors and managed care
providers in the private sector often lack a financial incentive to invest for investing in electronic
medical records and other improvements to the quality of the care they offer.
This is true even when it comes to implementing low-tech, easy-to-implement safety procedures.
For example, you've probably heard about surgeons who operate on the wrong organ or limb. Socalled "wrong site" surgery happens in about one out of 15,000 operations, with those
performing foot and hand surgeries particularly likely to make the mistake. Most hospitals try to
minimize this risk by having someone use a magic marker to show the surgeon where to cut But
about a third of time, the VHA has found, the root problem isn't that someone mixed up left with
right; it's that the surgeon is not operating on the patient he thinks he is. How do you prevent
that?
Obviously, in the VHA system, scanning the patient's ID bracelet and the surgical orders helps,
but even that isn't foolproof. Drawing on his previous experience as a NASA astronaut and
accident investigator, the VHA's safety director, Dr. James Bagian, has developed a five-step
process that VHA surgical teams now use to verify both the identity of the patient and where
they are supposed to operate. Though it's similar to the check lists astronauts go through before
blast off, it is hardly rocket science. The most effective part of the drill, says Bagian, is simply to
ask the patient, in language he can understand, who he is and what he's in for. Yet the efficacy of
this and other simple quality-control measures adopted by the VHA makes one wonder.all the
more why the rest of the health-care system is so slow to follow.
Why eare about quality?
Here's one big reason. As Lawrence P. Casalino, a professor of public health at the University of
Chicago, puts it, ''The U.S. medical market as presently constituted simply does not provide a
strong business case for quality."
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Casalino writeS from his own experience as a solo practitioner, and on the basis of over 800
interviews he has since conducted with health-care leaders and corporate health care purchasers.
While. practicing medicine on his own in HalfMoon Bay, Calif, Casalino had an idealistic
commibnent to following emerging best practices in medicine. That meant spending lots of time
111
teaching patients about their diseases, arranging for careful monitoring and follow-up care, and
trying to keep track of what prescriptions and procedures various specialists might be ordering.
Yet Casalino quickly found out that he couldn't sustain this commitment to quality, given the
rules under which he was operating. Nobody paid him for the extra time he spent with his
patients. He might have eased his burden by hiring a nurse to help with all the routine patient
education and follow-up care that was keeping him at the office too late. Or he might have
teamed up with other providers in the area to invest in computer technology that would allow
them to offer the same coordinated care available in veterans hospitals and clinics today. Either
step would have improved patient safety and added to the quality of care he was providing. But
even had he managed to pull them oft: he stood virtually no chance of seeing any fmancial return
on his investment. As a private practice physician, he got paid for treating patients, not for
keeping them well or helping them recover faster.
The same problem exists across all health-care markets, and its one main reason in explaining
why the VHAhas a quality performance record that exceeds that of private-sector providers.
Suppose a private managed-care plan follows the VHA example and invests in a computer
program to identify diabetics and keep track of whether they are getting appropriate follow-up
care. The costs are all upfront, but the benefits may take 20 years to materialize. And by then,
unlike in the VHA system, the patient will likely have moved on to some new health-care plan.
As the chief financial officer of one health plan told Casalino: "Why should I spend our money
to save money for our competitors?"
Or suppose an HMO decides to invest in improving the quality of its diabetic care anyway. Then
not only will it risk seeing the return on that investment go to a competitor, but it will also face
another danger as well. What happens if word gets out that this HMO is the best place to go if
you have diabetes? Then more and more costly diabetic patients will enroll there, requiring more
premium increases, while its competitors enjoy a comparatively large supply of low-cost,
healthier patients. That's why, Casalino says, you never see a billboard with an HMO advertising
how good it is at treating one disease or another. Instead, HMO advertisements generally show
only healthy families.
In many realms of health care, no investment in quality goes unpunished. A telling example
comes from semi-rural Whatcom County, Wash. There, idealistic health-care providers banded
together and worked to bring down rates of heart disease and diabetes in the country. Following
best practices from around the country, they organized multi-disciplinary care teams to provide .
patients with counseling, education, and navigation through the health-care system. The
providers developed disease protocols derived from evidence-based medicine. They used
information technology to allow specialists to share medical records and to support disease
management.
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But a problem has emerged. Who will pay for the initiative? It is already greatly improving
public health and promises to bring much more business to local pharmacies, as more people are
prescribed medications to manage their chronic conditions and will also save Medicare lots of
money. But projections show that, between 2001 and 2008, the initiative will cost the local
hospital $7.7 million in lost revenue, and reduce the income of the county's medical specialists
112
by $1.6 million. An idealistic commitment to best practices in medicine doesn't pay the bills.
Today, the initiative survives only by attracting philanthropic support, and, more recently, a
$500,000 grant from Congress.
For health-care providers outside the VHA system, improving quality rarely makes financial
sense. Yes, a hospital may have a business case for purchasing the latest, most expensive
imaging devices. The machines will help attract lots of highly-credentialed doctors to the
hospital who will bring lots of patients with them. The machines will also induce lots of new
demand for hospital services by picking up all sorts of so-calIed "pseudo-diseases." These are
obscure, symptomless conditions, like tiny, slow-growing cancers, that patients would never
have otherwise become aware of because they would have long since died of something else. If
you're a fee-for-service health-care. provider, investing in technology that leads to more treatment
of pseudo-disease is a financial no-brainer.
But investing in any technology that ultimately serves to reduce hospital admissions, like an
electronic medical record system that enables more effective disease management and reduces
medical errors, is likely to take money straight from the bottom line. "The business case for
safety .. remains inadequate ... [for] the task," concludes Robert Wachter, M.D., in a recent study
for Health Affairs in which he surveyed quality control efforts across the U.S. health-care
system.
Ifhealth care was like a more pure market, in which customers know the value of what they are
buying, a business case for quality might exist more often. But pw:chasers of health care usuaUy
don't knOVl', and often don't care about its quality, and so private health-care providers can't
increase their incomes by offering it. To begin with, most people don't buy their own health care;
their employers do. COnsortiUIns of large employers may have the staff and the market power
necessary to evaluate the quality of health-care plans and to bargain for greater commitments to
patient safety and evidence-based medicine. And a few actually do so. But most employers are
not equipped for this. Moreover, in these days of rapid turnover and vanishing post-retirement
health-care benefits, few employers have any significant financial interest in their workers' longterm health.
That's why you don't see many employers buying insw:ance that covers smoking cessation
programs or the various expensive drugs that can help people to quit the habit. If they did, they'd
be being buying more years of healthy life per dollar thanjust about any other way they could
use their money. But most of the savings resulting from reduced lung cancer, strQke, and heart
attacks would go to future employers of their workers, and so such a move makes little financial
sense.
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Meanwhile, what employees value most in health care is maximum choice at minimal cost. They
don't want the boss man telling them they must use this hospital or that one because it has the
best demonstrated quality of care. They'll be their own judge of quality, thank-you, and they'll
usually base their choice on criteria like: "My best friend recommended this hospital," or "This
doctor agrees with my diagnosis and refills the prescriptions I want," or "I like this doctor's
bedside manner." If more people knew how dangerous it can be to work with even a good doctor
113
in a poorly run hospital or uncoordinated provider network, the premium on doctor choice would
be much less decisive, but for now it still is.
And so we get results like what happened in Cleveland during the 19908. There, a wellpublicized initiative sponsored by local businesses, hospitals and physicians identified several
hospitals as having significantly higher than expected mortality rates, longer than expected
hospital stays, and worse patient satisfaction. Yet, not one of these hospitals ever lost a contract
because of their poor performance. To the employers buying health care in the community, and
presumably their employees as well, cost and choice counted for more than quality. Developing
more and better quality measures in health care is a noble cause, but it's not clear that putting
more information into health-care markets will change these hard truths.
Health ror service

So what's left? Consider why, ultimately, the veterans health system is such an outlier in its
commitment to quality. Partly it's because of timely, charismatic leadership. A quasi-military
culture may also facilitate acceptance of new technologies and protocols. But there are also other
important, underlying factors.
First, unlil\:e virtually all other health-care systems in the United States, VHA has a near lifetime
relationship with its patients. Its customers don't jump from one health plan to the next every few
years. They start a relationship with the VHA as early as their teens, and it endures. That means
that the VHA actually has an incentive to invest in prevention and more effective disease
management. When it does so, it isn't just saving money for somebody else. It's maximizing its
own resources.
The system's doctors are salaried, which also makes a difference. Most could make more money
doing something else, so their commitment to their profession most often derives from a higherthan-usual dose of idealism. Moreover, because they are not profit maximizers, they have no
need to be fearful ofnewrecbnologies or new protocOls that keep people well. Nor do they have
an incentive to clamor for high-tech devices that don't improve the system's quality or
effectiveness of care.
And, because it is a well-defined system, the VHA can act like one. It can systematically attack
patient safety issues. It can systematically manage information using standard platforms and
interfaces. It can systematically develop and implement evidence-based standards of care. It can
systematically discover where its care needs improvement and take corrective measures. In short,
it can do what the rest of the health-care sector can't seem to, which is to pursue quality
systematically without threatening its own fmancial viability.
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Hmm. That gives me an idea. No one knows how we're ever going to provide health care for all
these aging baby boomers. Meanwhile, in the absence of any near-term major wars. the
population of veterans in the United States will fall dramatically in the next decade. Instead of
shuttering under-utilized VHA facilities, maybe we should build more. What if we expanded the
veterans health-care system and allowed anyone who is either already a vet or who agrees to
perform two years of community service a chance to buy in? Indeed, what if we said to young
114
and middle-aged people, if you serve your community and your country, you can make your
parents or other loved ones eligible for care in an expanded VHA system?
.
The system runs circles around Medicare in both cost and quality. Unlike Medicare, it's allowed
by law to negotiate for deep drug discounts, and does. Unlike Medicare, it provides long-term
nursing home care. And it demonstrably delivers some of the best, if not the best, quality health
care in the United States with amazing efficiency. Between 1999 and 2003, the number of
patients enrolled in the VHA system increased by 70 percent, yet funding (not adjusted for
inflation) increased by only 41 percent. So the VHA has not only become the health care
industry's best quality performer, it has done so while spending less and less on each patient.
Decreasing cost and improving quality go hand and hand in industries like autos and
computers-but in health care, such a relationship virtually unheard of. The more people we can
get into the VHA, the more efficient and effective the American health-care system will be.
We could start with demonstration projects using VHA facilities that are currently under-utilized
or slated to close. Last May, the VHA announced it was closing hospitals in Pittsburgh; Gulfport,
Miss.; and Brecksville, Ohio. Even after the closures, the VHA will still have more than 4
million square feet of vacant or obsolete real estate. Beyond this, there are empty facilities
available from bankrupt HMOs and public hospitals, such as the defunct D.C. General. Let the
VHAtake over these facilities, and apply its state-of-the-art information systems, safety systems,
and protocols of evidence-based medicine.
Once fully implemented, the plan would allow Americans to avoid skipping from one health-care
plan to the next over their lifetimes, with all the discontinuities in care and record keeping and
disincentives to preventative care that this entalls. No matter where you moved in the country, or
how often you changed jobs, or where you might happen to come down with an illness, there
would be a VHA facility nearby where your complete medical records would be available and
the same evidence-based protocols of medicine would be practiced.
You might decide that such a plan is not for you. But, as with mass transit, an expanded VHA
would offer you a benefit -even if you didn't choose to use it. Just as more people riding
commuter trains means fewer cars in your way, more people using the VHA would mean less
crowding in your own, private doctor's waiting room, as well as more pressure on your private
health-care network to match the VHA's performance on cost and qUality.
Why make public service a requirement for receiving VHA care? Because it's in the spirit of
what the veterans health-care system is all about. It's not an entitlement; it's reco.gnition for those
who serve. America may not need as many soldiers as in the past, but it has more need than ever
for people who will volunteer to better their communities.
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Would such a system stand in danger of becoming woefully under-funded. just as the current
VHA system is today? Veterans comprise a declining share of the population, and the number of
Americans who have personal contact with military life continues to shrink. It is therefore not
surprising that veterans heatth-care issues barely register on the national agenda, even in times of
war. But, as with any govermnentbeuefit, the broader the eligibility, the more political support it
is likely to receive. Many veterans will object to the idea of sharing their health care system with
115
non-vets; indeed, many already have issues with the VHA treating vets who do not have combatrelated disabilities. But in the long run, extending eligibility to non-vets may be the only way to
ensure that more veterans get the care they were promised and deserve.
Does this plan seem too radical? Well, perhaps it does for now. We'll have to let the ranks of the
uninsured further swell, let health-care costs consume larger and larger portions of payrolls and
household budgets, let more and more Americans die from medical errors and mismanaged care,
before any true reform of the health-care system becomes possible. But it is time that our debates
over health care took the example of the veterans health-care system into account and tried to
learn some lessons from it.
Today, the Bush administration is pushing hard, and so far without much success, to get healthcare providers to adopt information technol9gy. Bush's National Coordinator for Health Care
Information Technology, Dr. David Brailer, estimates that if the U.S. health-care system as a
whole would adopt electronic medical records and computerized prescription orders, it would
save as much as 2 percent of GDP and also dramatically improve quality of care. Yet the VHA's
extraordinary ability to outperform the private sector on both cost and quality suggests that the
rest of the Bush administration's agenda on health care is in conflict with this goal.
The administration wants to move American health care from the current employer-based model,
where companies chose health-care plans for their workers, to an "ownership" model, where
individuals use much more of their own money to purchase their own health care. But shifting
more costs on to patients, and encouraging them to bargain and haggle for the "best deal" will
result in even more jumping from provider to provider. This, in turn, will give private sector
providers even fewer incentives to invest in quality measures that payoff only over time. The
Bush administration is right to question all the tax subsidies going to prop up employer-provided
health insurance. But it is wrong to suppose that more choice and more competition will solve
the quality problem in American health care.
VHA's success shows that Americans clearly could have higher-quality health care at lower cost.
But ifwe presume-and it is safe to do so-that Americans are not going to accept the idea of
government-run health care any tinie. soon, it's still worth thinking about how the private healthcare industry might be restructured to allow it to do what the VHA has done. For any private
health-care plan to have enough incentive to match the VHA's performance on quality, it would
have to be nearly as big as the VHA. It would have to have facilities and significant market share
in nearly every market so that it could, like the VHA, stand a good chance of holding on to
customers no matter where they moved.
It would also have to be big enough to achieve the VHA's economies of scale in information
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management and to create the volumes of patients needed to keep specialists current in
performing specific operations and procedures. Not surprisingly, the next best performers on
quality after the VHA are big national or near-national networks like Kaiser Permanente. Perhaps
if every American had to join one such plan and had to pay a financial penalty for switching
plans (as, in effect. do most customers of the VHA), then a business case for quality might exist
more often in the private health-care market. Simply mandating that all health-care providers
adopt electronic medical records and other quality protocols pioneered by the VHA might seem
116
like a good idea. But in the absence of any other changes, it would likely lead to more hospital
closings and bankrupt health-care plans.
As the health-care crisis worsens, and as more become aware of how dangerous and unscientific
most of the U.S. health-care system is, maybe we will find a way to get our minds around these
strange truths. Many Americans still believe that the U.S. health-care system is the best in the
world, and that its only major problems are that it costs too much and leaves too many people
uninsured. But the fact remains that Americans live shorter lives, with
mohttp://www.wasbingtorunonthly.comlfeatures/2007/0710.longman.htmlre disabilities, than
people in countries that spend barely half as much per person on health care. Pouring more
money into the current system won't change that. Nor will making the current system even more
fragmented and driven by short-term profit motives. But learning from the lesson offered by the
veterans health system could point the way to an all-American solution.
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httj!:/Iwww.wasbingtorunonthly.comlfeaturesl200S/OSO l.1ongman.html
117
2013-11-29 DEI to Healtb Insurers - Obamacare broken promises due 12-13 (15 letters)
sent to:
Mr. William Winkenwerder, Jr.

Highmark, Inc.
Mr. J. Bradley Wilson
BlueCross BlueShield of North Carolina, Inc.
Mr. Bemard Tyson
Kaiser Permanente
Mr. Joseph Swedish
WeIlPoint, Inc.
Mr. J. Mario Molina

Molina Healthcare, Inc.
Mr. Daniel Hilferty

Independence Blue Cross
Mr. Stephen Hemsley
UnitedHealth Group Inc.
M$. Patricia Hemingway Hall

Health Care Service Corporation
Mr. Patrick: Geraghty
Blue Cross and Blue Shield of Florida, Inc.
Mr. Jay Gellert

Health Net, Inc.
Mr. David Cordani

Cigna Corporation
Mr.Chet Burrell
CareFirst BlueCross BlueShield, file.
Mr. BNeI:' Broussard

Humana, Inc.
Mr. Broce Bodaken

Blue Shield of Cali'tbmia
Mr. Mark Bertolini
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Aetna, Inc.
118
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AANK!1fG MINCNUTV ME""EII;
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ongrt~~ ,of
llnittb ~tat~
~O~t of l\tprtStl1tatib~
COMMliTEE ON OVERSIGHT AND GOVERNMENT REFORM
2157 RAVBURN HOUSE Oi'FICE BuiLDING
- ...
WASHINGTON. DC 20515-6143
NMWI!n
troal~4
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kaIRY L. tPmYOUo. MlCHIGAAI
1KmOlSAN1lS.n~
November 29, 2013

Mr. Mark Bertolini
Chairman, President, and CEO
Aetna, Inc.
lSI Farmington Avenue

Hartford, cr 06156
Dear Mr. Bertolini:
The Committee on Oversight and Government Refonn is continuing its oversight of the
implementation of the Affurdable Care Act, also known as <Jban)aCare. The President sold his
hes1th care refonn plan to the American people on two fundamental promises:
"[N]o matter how we refonn heslth care, we will keep this promise to the
American people: If you like your doctor, you will be able to keep your doctor.
period. If you like your hes1th care plan, you'll be able to keep your heslth care
plan, period."I
After millions ofAmericans received notices that their plans were being canceJled, the President
w8s tOrced to acknowledge just how misleading his assurances were? The President has since
offered an "administrstive fix" that may allow certsin individuals to keep their current plans for
up to one
Serious questions remain as to the proposal's feasibility and legality.
year.'
Now, there is mounting evidence that the President's second promise is similarly untrue.
Even among the individuals. tbrtunatc enough to keep their plaoa, many Americans are finding
that access to Ibeirpreferreddoctor(s) is being abruptly terminated. On November 16, 2013, the
Wall Street Jounuzl reported that UnitedHesIth GrouP. the nation's largest ptQvider of privatelyixu\Daged.Medicare Advantage plans, has dropped thousands ofdoctors from its network in
recent weeb.4 Termination letters sent to doctors in at least 10 states cited "significant changes
and pressun:s in the hes1th-care environment."s When pressed for an explanation. the president
PnisidontBamct Obama, Remarli:s bytbe President at the ADDwiI CoDi'oroace oftbe American Medical
Asaociatio!l (1_15, 20(9).
'latetvIowbyCltu\>kTodd, NBC News, wiIh~ BamctObama, Intbe WhiteHO\ISI>(No\'. 7, 2013).
'Carol B. Lee and Louise Il.adnotiky. WIlli" H_ /() AUow buurtr.t to Omtimre Cant:eled Het4tJI PII1II8, WALLST.
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1.. NO.14. 2013,

Melinda Bed<, UnlledHealth Culls DocItJr$ From Medictzrs Adwml~ PlaIJIl, WALL Sr. J., Nov. 16, 2013.
'Ii.
'
119
Mr. Bertolini
November 29, 2013
Page 2
of UnitedHealth's network explained "It's no secret we are under substantial funding pressure
from the federal government.,,6
Some healtli insurers have acknowledged that they are slashing provider payment rates
for plans offered on ObamaCare exchanges.1 State medical associations are concerned this will
create a ''two-tiered system in which fewer doctors participate, potentially making it harder for
consumers to get the care they need."s Dr. Richard E. Thorp, an internist and president of the
California Medical Association, noted that one plan sold on that exchange ''was going to pay us
significantly Jess fur doing that business. And we are already very busy.,,9 This has prompted
concetn among experts: if providers are paid less, enrollees will confront significant difficulty
even getting physicians to accept them as patients. IO According to a comprehensive report of
insurers offering coverage in the new health insurance exch~ "the exchange market will
essentially offer Medicsid managed care for the middle class." I Medicsid managed care plans
often feature narrow networks of providers, which result in many Medicsid enrollees overusing
emergancy rooms for basic health care needs. 12
It appear!! that this "access Shock" was an entirely predictable consequence of the core
operativemechanisms of the law. 13 In an op-ed in the Concord Monitor, the president and CEO
of Concord Hospital explained why his hospital network would not be participating in the plans
offered by the sole insurer in New Hampshire's ObamaCare exchange, Anthem New Hampshire:
OUr decision to not participate in this exchange at this time was not a political
statement. We are not opposed to the tenets ofthe Affordable Care Act or
exchanges. However, Anthem was unwilling to negotiate sustainable contract
terms, and the reimbursement rates that they offered would ultimately result in us
being paid less than what it costs us to provide care..Anthem has Indlcated that
It lIIteIlch to convert aD of1ts individual poIleJes to the exclumge product in
2014, wJdch means that those patlents may not be able to acc:ess care through
Concord Hospital In the future. 14 [emphasis added)
The predictability of these impacts raises sedona questiona as to the origin and
natare ofthe President's assurances. When pressed for an explanation, officials in the
'14.
1 ).UmlOuynRlobin, Dot:tors Cmitplain They Will IhPafdLeas By Exelumge P/flII3, KAIs!laHllALTIINBws, Nov.
19,2013,
tId.
14.
!Old.
"l!dm1md F. Heislmaicr, Health .lJtsIirm'DecisIons on ExeIumgeParticipation: ~'8 Lading IndIcators,

Bedtage l'bundatioIl, Nov. 12,2013, <MIi1abk.at hUp:l/www.beritage.orgIresearchIrel31111hoal1h-~
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deoisioDs-oD-I'Jt~p~~
.. Brim Blase, Medicafdl'nwides PoorQuallty CI1H: W1uu tire R_an:h Sbow8, Heritage F'oondalion, May 5,
2011, amflabk at http://www.beritage.OlJ!/.....atchIreporOII105Imedicaid-provides-poor-qua1ity-can>-wbat-the.......-ch-shows
Usee, "g.,AlIIxAltmm, 'YOIlCanKeep YourDoc/or', O/JDmacQre'.Next lJrokm PromISe?, TIMIl,NoV,19,2QlS,
.. Micbaell. OnIon,H"",'..why Com:crdl(capitalapted out, COllCOltDMONlroR, Sept. 11, 2013.
120
Mr. Bertolini
November 29,2013
Page 3
White House offered tortured redefinitions and obfuscations. In a press briefing on
November 19,2013, the White House Press Secretary asserted that what the President
meant by "if you like your doctor, you will be able to keep your doctor, period," was that
"if you want coverage from your doctor, a doctor that you've seen in the past and want
that, you can look and see if there's a plan in which that doctor participates.,,15 Such a
gloss must ring especially hollow to the patients of Concord Hospital, who stand to lose
access to their long-time doctors.
Tellingly, in stark contrast to the White House Press Secretary's revision and
qualification, the White House website continues to unequivocally affinn the President's original
promise. A page answering "Frequently Asked Questions" on ObamaCare includes the
fullowing exchange;
Q:
Will I be able to keql my doctor?
A:
Yes, you will. Health insurance refurm will not affect the choice
of doctors you have today and it won't affect your relationship
with your doctor. 16 [emphasis added]
The Annenberg Public Policy Ceoter of the University of Pennsylvania has labeled the
President's claim "misleading," noting that ''the president simply can't make this promise to
everione.'t17 The glaring inconsistencies in the Adminiatrstion's narrative, ccnpled with the
dispositiYe evidence that millions of Americans are unable to "keep their doctor, period,"
demand rigorous exSJninstion. To enable the Committee to batter underatand the nature of
ObamaCare's impact on provider access, we respectfully request your assistance. Please provide
responses to the fullowing requests fur information
1. Provide all documents that identify when employees or agents ofAetna first learned
that the Adminiatrstion would publica1ly advocate fur its health care refum!. initiatives
on the premise that individuals would be able to keep their current plans or current
providers.
2. Provide all docmnents showing whether employees or agents of ActnI1 intbrlned
Adminiatrstion officials that the Adll!inlstration'shealth care reform initiatives would
cause Actoa to reevaluate its provider networks or provider payment rates.
3. Provide all documenfS showing aoy objection by employees or agents of Aetna,
whether i)!ternaIlyor to external parties, to the Administration's characterization that
if one "likes their doctor, they can keep their doctor."
1$1'""", ReI...... om"" al'lhe Press Socret\lI'y, Tho WbilIl HOIIlIC,.Briolil!g by Press Secretary Jay Carney (Nov. 19,
2013).
16 l'IitJing AmericaIIII ill Control oj'Tltelr Ht!4ltft eo,.., Fr.qu.m/y AIW QuIlOtlmts, lhe White House, ava/1J1b1e at
1>ttJ>:I1www.whi!obouse.govlJloallh-eare-!l1e01!nf~2.
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11 Obamacore A(yIb,FactCbcck.org, AnnenbcIr!I Public Policy'Caliot, lhe University of Pennsylvania, Sept. U;,
2.013, ava/Tab/e at http://www.filctcheck.0rg/20131O!1~llIyt!JsI.
121
Mr. Bertolini
November 29, 2013

Page 4
4. Provide all documents identifying the number of plan cancellation notices sent by
Aetna, since January 1. 2013, in which the cancellation was attributable.in \lilY way to
provisions of the Patient Protection and Affordable Care Act.
5. Provide all docuinents identifying the number ofproviders terminated from Aetna
provider networks since January 1, 2013, in which the temlination was attributable in
any way to provisions of the Patient Protection and Affurdable Care Act.
6. Provide all documents and communications, including meeting notes, since Mare'll
23,2010, between employees or agents of Aetna and any employee oithe Executiye
Office of the President.
7. Provide all documents and communications since March 23, 2010, between
employees or agents of Aetna ret'errln$ or relating tn the accuracy ofstatements tn the
effect that if one "likes their doctot, they can keep.their doctor."
'nIe Committee on OVetsight and Government Refunn is the principal oYl)[Sight
commilteeofthe House ofRepresentatives and may at ~'any time" investigate ''any mattCi:" as set
lPrth in House Rule X. An attachment to this letter provides additional information about
responding to the Committee's request.
Pleass prQvidt! all such responses as soon as possibI",tmt no later than 5:00 p.m.on
:i:>eeinber 13, 2013. Whenprodiwing documentll to the Committee, p1eass delivtll' producti()D.
~to ill!' M;ajorjty Staffin Room 2151 ofthe.RlI.yboro House OffiCllBut'iding and iheMinority
StjdfillRoom2411 oftheRaybum Honse Offil:eBuilding; The Committee :ptefm to l'eIleive all
docuinentsill ~ format.
BIl~!lS'Ilte
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122
Page 1 01'3
G.O.P .. Healthcare.gov Too Fast ",ow: The New Yorker
E
December
j,
G.O.P.: Healthcare.gov Too Fast Now

Posted by Alhzr Borull'i!;::
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WASHINGTON (The Borowitz Report)--Republican critics ofObamaeare rose up in 3ngertoday, claiming that,
after two months of fixes, the healthcare.gov \Veb site is now "unacceptably fast."
Leading the howls of protest was the House Committee on Oversight and Government Reform chainnan Darrelllssa
(R-Calif.), who accused President Obama of designing a Web site that operates at a "blistering. breakneck speed."
"With pages loading in milliseconds, this Web site is insuring people before they know what hit them;' Rep. Issa
charged. "Clearly, this is what the President and his team had in mind."
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http://www.newyorker.com/on linc!blogs/boro witzreport/20 13112 1gop-healthcaregov-too-f11... 12/4120 13
123
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G<O<P<: Hcalthcarc<gov Too Fast l\()w: The New Yorker
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http://ww\v<newyorker<com!on linc!blogslborowitzreportl20 I J/12/gop-healthcaregov-too-fa< < 12/4/2013
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G.D.P.: Heahhcare.gov Too Fast Now: The New Yorker
Iran's Suprcmc Leader Hopes '\ukc Deal Distl'llcts Attention from Obamaeare
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fhe (ireat
nCb~HC })
\Vlla! about Sc>cial Sct'llriIY's rollout?
'l
Print
http: 'ib!ogs.rt>1l!Cr~.c:om'grel1Hk'bnh>'20 J 3/ lO;'2Xlwhat-abouH;ocialsc .. ,
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What about Social Security's rollout?

October 28, 2013 @ 10:34 pm
By Bruce J. Schulman
[1)
After the nation's major socia! program finany became law, critics regularly blJmed it for a slowing
economy and a swelling federal bureaucracy, Fierce congressional opposition led to the formation of
n blue-ribbon panel to overhaul the measure. Obamacare in 2013? Not quite. It was Social Security
in 1937.
for the far~reachjng health insurance initiative, administrators
Implementation, according to the man who oversaw
the introduction
"took the form of i'l whole year of consultation with literally
hundreds of people in identified areas of concern,"
The tortuous, often controversial implementation of both Medicare and Social Security serves as an
early template for the current controversies over the Obamacare rollout. The ultimate Sllccess of
those socia!
to calm the overheated atmosphere surrounding the first days of
Care Act.
of Adolf Hitler and Nazi

thoughtful critics like former
George
Bush speechwriter Mic!}SU
~ ! <1 ] are depicting the healthcare
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126
The (irell! Debate ); Wlml ah(lut Sodal Security's rollou!? ) Print
insurance
crisis for
http://blogs.reuters.cOInJ great-debutei2UI3/ 1Oi2S \vhat-about-socil\l-se ...
it as an "inte!Jectual
liberalism."
universal single payer system,

the Affordable Care Act as the foundation of a
To be sure, Americans
successful national health
an untouchable entitlement like Social Security. Or
enter ttle annals as an ignominious failure. But if history IS any guide, nobody wHf
Obamacare
be able to
authoritatively
maybe even decades - certainly not until after the
program evolves Significantly from
conception.
Implementation of massive public programs on a national scale takes time - especially in the
among local, state and
United States, when responsibility for administering them is divided not
national governments, but between pubHc agencles and private actors like
companies,
hospitals and doctors,
Social Security t that now beloved centerpiece of the nation's social safety net, offers a case In point.
Created in 1935, the program took 40 years just to include all working Americans in its basic
coverage. When the o!d~age insurance program launched in 1937, barely more than half the labor
force participated.
[7J A series of amendments to the Social
Act gradually
percent of
expanded coverage, By 1979 it finally reached
American workers, Over the decades, Congress repeatedly
retrofitted Socia! Security [81: adding dependent and survivor

benefits; balancing payments between early participants and
later retirees; including farm workers, domestic laborers and
the self~employed, and introducing annual cost-of-living
adjustments.
Social Security's first baby steps proved especially uncertain, Of
course, opponents denounced the penSion plan as the leadlng
of a socialist revolution. One senator warned that the
nationaiizatitln of wheat fields would soon foUow. Former
[9} suggested the law would reduce
!lli;"""LLC""""t""o servile passivity. "Our people are not
into a natlonal zoo," Hoover warned, "our
citizens claSSified, labeled and directed by self-approved
keepers."
But It was not just dissident conservatives who issued
disparaged the program for its
abuses. One watchdog
iI!-qualified workers to
In response, the
educate Americans
popular
50c1al Security administration launched a massive PR

to
intricaCies of the program and broaden support for it.
effort
l0
distributed booklet, "Whv Social Secq.dly [ 1?" with whimsicalll!ustrations by a
books,
reserve
of the Great Depression.
and mainstream
Security for the "Roosevelt Recession" of
administration reVIsed the act in 1939 to reform its financing
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I:U3!2013 1):46 PM
2M5
127
rile Great Debate )) Wlut about Social Security's rellout7 )) Print
http:'Jblogs.rClHers.comigrcat-dcbalci20!3/ ! O':2K\vhat-aboul-sodnl-se ...
benefits.
[11]SimHar uncertainty marred the
introduction of Medicare. When the health
stymied implementation: How would Medicare respond to segregated facilities

in the
How would the program accommodate group health plans like Kaiser J which did not
use traditional fcc-for~5crvice systems?
As sign-up day approached, President Lyndon B. Johnson put the Veterans Administration and army
hospitals on alert to insure that nobody was denied care J particularly African-Americans in the
to transport patients in case newly insured seniors
South. LB) also readied a fleet
overwhelmed their local hospitals on
[13]some of the most difficult
challenges revolved around
recruiting elderly Americans to enror!
in the program by the March 31,
1966 sign~up date. Deploying
resources across the Federal
enlisting the
down senior
Much like the history of Social Security, Medicare has also experienced repeated tweaks
From new coverage for catastrophic care and
financing formulas.
Implementing
demonstrate,
thiS.
of criticism, QQ]l!2 [161 show that majority of Americans still support the law
enough.
mixture of Social
tax supported 401k and
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12 1)!2013 9:46 Ptvl
128
The Great Debate }) What about Social Security's rollout? Print
hUp:llblogs.reulers.con>'great-debatel2013/1 O/28/what-.bout-social-se...
A comparable effective national healthcare system could never emerge overnight.
PHOTO (Top): President Franklin D. Roosevelt signing the SoCIal Security Act, August 14, 1935,
Laber Secretary Fram;es Perkins stands behind him. Courtesy of FRANKUN D. ROOSEVELT
PRESJOENTIAL UBRAR Y
PHOTO (Insert 1): flUng workers' applications for SoCIal Security account numbers: Considered at
the time part of the biggest book-keeping job In the world. Courtesy of FRANKUN O. ROOSEVELT
PRESIOENTIAL LIBRARY
PHOTO (lfIsert 2): Unemployed insured workers registering for jObs and filing benefit da/ms at a
state employment off/CR:. Courtesy of FRANKLIN D. ROOSEVELT PRESIDENTIAL UBRARY
PHOTO (Insert 3): President Lyndon B. Johnson hands President Harry S. Truman a pen as Lady
BIrd Johnson, VlCR: PresIdent Hubert Humphrey, and Bess Truman look on at the signing of the
Medicare Bill at the Harry S. Truman Ubrary in IndependefICR:, Missouri, July 30. 1965. Courtesy of
LBJ PRESJDENTIAL UBRARY
PHOTO (Insert 4): A busy screen on the laptop of a certified application counselor as he attempted
to enroll an Interested person for Affordable care Act InsuranCR: at the Borlnquen Medical Center In
Miami, flOrida, October 2, 2013. REUTERS/Joe Skipper
[1] Image: http://blogs.reufers.com/grestdebate/flles/2013/10/fd ....slgnlng-soclal
sec:urltyl.jpg
[2] Image: http,//blogs.reuters.com/grest-debate/flles/2013/10/SSc1erks.glf
[31 Neville Chamberlain and other appeasers: http.l/www.slate.eom/blogs/welgel/2013/09
/24/ted_Cl'U:r....fundlnLobamacare_ls_baslcally_lIke_appeaslng_hltler.html
(4J Michael Gerson: http://www.washingtonpost.com/opinions/michael-gersonalllng
obamacare-could-become-a-crlsls-for-liberallsm/2013/10/21/00bbc938-3.82-11elag4f-b58017bfee6,,_story.html
[5] voices on the pol~lcallefl:: http://www.washlnlltonmonthly.com/polltlcalanlmal
a/2013..10/malfunc:tlonlng_exehanlles_show047419.php
{5] called the launch a 'failure. n: http:./www.washlngtonpost.com/blogs/wonkblog
/wp/2013/10/14/flve-thoughtson-the-obamacaredlsaster,
(7] Image: http.//blogs.reuters.com/great-debate/files/2013{10/SSbeneflts2,glf
(8] retrofitted Social Security: http://www.ssa.gov/pollc:y/docs/ssb/v6Snl/vSSnlpl.html
(9] Herbert Hoover: http://news.google.com/newspapers?nld=1928I1tdat=19350S0S11t
Id=79MIlAAAAISAJIIt.jld=6WOPAAAAISAJlltpg=1522,2944240
[10] Why Sodal Security: http://www.ssa.gov!hlslory/whybook.html
[llJ Image: http://blog. reuters.com/great-debate/fll/2013/10/medl''''.......,gnlngbetter3.jpg
(12] Stlll, the complexity of the new program made Its rollout a lengthy, contentious prOCR:ss:
http,//www.nasl.org/usr_doc/med_reporLrefiectlons.pdf
.
[13] Image: http://blogs.reuters.com/great-debate/flles/2013/10/obamacare
comp.screenl.jpg
[14] Newspapers reported concerns about the costs of the new program, widespread confusion over
the available coverag: http./lwww.wa.hlngtonpost.com/blogs/wonkblog/wp/2013
/OS/17/whenmedlcarelaunchednobodyhadanyclue-whethe....ltwouldwork/
[15] tweaks, expansions and Improvements: http://www.cms.gov/About-CMS/Agency
Informatlon/Hlstory/lndex.htmI7redlrect=/hlstory/
[16J polls: http://www.washlngtonpost.com/blogs/plum-line/wp/2013/10/21/themorning-plum-dont-squander-your-shuldown-gaJns.. dems!
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129
The Great Debate ) What about Social Security's rollout? Print
1!Up:!Ib!ogs.reuters.comigreat-debatel2013110l28Iwbat-about-social""e...
world.
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130
Questions for Dr. Calabria
Director of Financial Regulation Studies
Cato Institute
Questions from Representative Collins
Hearing on:
"The Roll Out of HealthCare. gov: The Limitations of Big Govemment"
1. The debacle that has been the rollout of Healthcare. gov has illustrated a point that has
been clear to me and the people of Northeast Georgia for a long time: the President has
been far more interested in campaigning, and far less interested in governing. Let's look
at his 2012 campaign for example, universally lauded as the most technologically
advanced campaign in history. Then a year later, with the same man in charge of both
projects, we get Heathcare.gov. One website crashes constantly and is unable to relay
accurate information; the other has an enormous capacity and is fully integrated for
quality and reliability of information. I think that this raises a broader question, which is
why is it acceptable, even to the President, to produce a subpar product as long as the
federal government is footing the bill? Is this inherent in the nature of government, or is it
reflective of this administration?
Calabria: The short answer is: Both. There were certainly mistakes made in the roll-out
of HealthCare. gov that were likely under any administration. As GAO has made clear in
countless reports on a variety of federal programs, information technology in the federal
government falls far below private sector standards and often displays costs far in excess
of the private sector. So some of the problems of HealthCare. gov go beyond this
administration.
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That said, given the known problems with federal IT, HealthCare.gov was clearly rushed.
If you know something is likely to encounter problems, then you plan for problems, even
if the exact details are not known ahead of time. The roll-out of HealthCare. gov appears
more driven by political considerations than by practical ones. Of course failure is an
inherent part of any learning process. The difference is that markets generally correct
their failures, whereas political systems generally deny and continue their failures. While
I believe that people inherent spent their own money more carefully than they spent other
people's money, this administration does appear to have taken that disregard to a new
level.
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2. You've done a great deal of research on GSEs (govenunent-sponsored enterprises), and
in specific Fannie Mae and Freddie Mac. You've been very open about how needless and
wasteful you believe that Fannie and Freddie are. They perform the same action as the
private sector, they just do it worse. Do you think that it would be fair to expect similar
results from Obamacare that we've seen from Fannie and Freddie? Repeated failure and
needing additional large infusions of cash in order to remain in place?
Calabria: I do believe there are numerous examples from our mortgage finance policies
that shed light on our health care policies. The nature of government insurance programs
displays similarities across the risks being insured. Both moral hazard and adverse
selection characterize any insurance system, both private and public. The temptation to
use insurance as a means of wealth redistribution, rather than simply pooling risk, is
strong and certainly characterizes our mortgage finance system. The temptation to also
use insurance mechanism to create off-budget contingent liabilities is also particularly
great. Recall we were told for years that Fannie Mae and Freddie Mac would never cost
the taxpayers a dime. A basic knowledge of economics and insurance would have
revealed that to be false. Unfortunately it took a crisis to demonstrate that fact.
Housing, education, and health care policies also demonstrate another commonality:
when subsidize demand in the face of relatively fixed supply, you largely run up prices.
We've seen that in housing, where Fannie Mae and Freddie Mac did not result in any
long run increase in homeownership but did result in a run-up in housing prices,
contributing to a boom and bust in housing. Subsidies for higher education have also
resulted in dramatic price increases that have largely been captured by the universities.
There is every reason to believe that Obamacare will continue to drive up health care
costs as it does not address the inherent lack of competition in health care. Cato scholars
have written regularly on the topic of health care reform. I would point you to the work
of my colleagues Michael Tanner and Michael Cannon. My decades oflong study of
mortgage finance policy suggests to me that Obamacare will be very costly but with very
little actual benefit for health care consumers as a whole. As with mortgage finance, the
best solution would be to remove pre-existing distortions and barriers to competition.
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Questions for Dr. de Rugy
Senior Research Fellow
Mercatus Center
Hearing on:
"The Roll Out of HealthCare.gov: The Limitations of Big Government"
1. The debacle that l}as been the rollout of Healthcare.gov has illustrated a point that has
quality and reliability of information. I think that this raises a broader question. which is
federal government is footing the bill? Is this inherent in the nature of government, or is it
2. We have heard about the repeated crashes of Healthcare.gov over the past two months.
The Obama administration is now claiming that the website is working, however we are
continuing to hear reports of more issues. According to Robert Zirkelbach from
America's Health Insurance Plans, "insurers are still receiving enrollment files that are
duplicative or include missing or inaccurate information. In some cases they aren't
receiving those enrollment files at all." Now this law bas mandated that people have
insurance, it has provided them a broken system through which to attain it, and once they
claim that it is fixed, it is not transmitting the information to the companies who will be
providing said insurance. It sounds to me like the government poking their nose in and
messing the whole process up. Dr. de Rugy, you have written about the failures of big
government, no matter how much money is spent. We know that this law is ill conceived
and poorly implemented, but what do you see as the next failure of this law?
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I. President Obama's two very different experiences in overseeing broad technological projects
suggest that the failure of the Affordable Care Act (ACA) is fundamentally rooted in government
failure. The striking differences between the private sector and the government's ability to
successfully deliver goods and services were apparent during the rollout of the healthcare.gov
website. The technological outcomes of the Obama presidential campaign were worlds away
from the technological capabilities ofthe Obama administration's overseeing an unprecedented
expansion of the federal bureaucracy. It has been well documented that one of the reasons the
healthcare.gov experience was so disastrous is that government officials faced the same
constraints from excessive regulations as the private sector.
In fact, President Obama himself acknowledged that fact a few months ago during one of his
appearances discussing the ACA's troubled rollout. In an interview with Chuck Todd, the
president said, "You know, one of the lessons-Ieamed from this whole process on the website
- is that probably the biggest gap between the private sector and the federal government is
when it comes to I.T. Well, the reason is that when it comes to my campaign, I'm not constrained
by a bunch of federal procurement rules, right?" President Obama should apply this same
principle to the other unsuccessful areas of government involvement he oversees.
In addition to the negative impact of excessive regulations on the government's ability to
successfully build things and deliver goods and services, the way government actors make
decisions is an important explanatory factor of government failure. This persistent failure is not
due to the personality flaws of anyone politician or party, but is a predictable result of the
incentives and constraints that necessarily permeate political systems. As the work of public
choice economists such as James Buchanan, Gordon Tullock, Bill Niskanen, and many others
show, government decisions are all too often driven by politics, special interests and misguided
aims-regardless of the party in power. Typical proposals for "more accountability," "more
funding," or "more transparency" simply will not obviate the realities of political decisionmaking. Rather, we should, as our Founders so presciently articulated, restrict the domain of
government intervention to limit the toxic influences of political pressures.
Unfortunately, far from learning the lesson from the healthcare.gov fiasco that government isn't
very good at building things or that government gets in the way of private business, the president
appears to remain determined to further expand the government's sphere of intervention. This
will make the problem much worse for many years to come.
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2. The technical troubles of the widely maligned healthcare.gov website are now infamous. The
website rollout, however, should have been one ofthe easiest components of the health care law
to implement. The design and functionality of the healthcare.gov website are qualities that were
well within the control of program administrators. Executive administrators were presented with
clear deadlines, ample time, and considerable funding to launch the website, which would
provide Americans with their first salient impression of the ACA. The implementation of the
substance of the legislation, on the other hand, is critically dependent upon broad American
participation, understanding, and support. A host of carrots and sticks-such as mandates,
subsidies, and minimum insurance plan requirements-were included in the ACA to incentivize
citizens to behave in the way that plarmers intended. Not only have many of these provisions
proven to be wildly unpopular, the Obama administration itself has consistently delayed or
134
quietly ignored the critical incentives that legislative designers included to ensure "the proper
functioning of the law, creating more confusion and further diminishing Americans' faith in its
purported benefits. More important to policyrnakers, the growing number of these ad hoc, de
facto line-item vetoes progressively undermine the objectives that ACA supporters originally
sought.
It is because the law was, "ill-conceived and poorly implemented," that it is therefore difficult to
speak of anyone next "failure" that we can expect. We know from the recent Congressional
Budget Office report that the ACA will have a chilling effect on the number of hours worked in
the nation over the next decade. We know from a recent Harvard study that Medicaid expansion
in Oregon led to increased emergency room visits, which suggests that the intended purpose of
Medicaid expansion in the ACA is not likely to be achieved. We know from the paltry
enrollment figures the Department of Health and Human Services has finally provided the public
that 68 percent of enrollees have been in the relatively less healthy (and more expensive to treat)
35-64 year old range as of February I, 2014. We know that many individuals' previous insurance
plans have seen dramatic premium increases and that too many Americans have tragically lost
access to the doctors and even critical care that they desire or need during this awkward
transition.
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Indeed, the ACA is dying a death of a thousand paper cuts. Each little dent to the ACA's
reputation is inconvenient and inefficient, but appears relatively minor on its own. When
considered together, however, the ACA-already a mess of contradictory and uncertain
incentives and provisions-is gradually collapsing under its own weight with each delay and ad
hoc waiver. It will not, as ACA supporters claimed, boost job growth,decrease emergency room
visits, adequately manage insurance risk pools, or lower premiums while increasing quality.
From this perspective, perhaps the worst "failure" that could come would be if the federal
government continued to delay provisions and ignore these growing problems in an effort to save
ACA simply for the sake of saving it.
135
Response from Dr. Thomas
Historian and Communications Associate
Johns Hopkins Bloomberg School of Public Health
External Affairs
Question from Representative Collins
Committee on Oversight and Govemment Reform
Hearing on:
"The Roll Out of HealthCare.gov: The Limitations of Big Govemment"
1. The debacle that has been the rollout of Healthcare.gov has illustrated a point that has
advanclld campaign in history. Then a year later, with the same man in charge of both
federal govemment is footing the bill? Is this inherent in the nature of government, or is it
Representative Collins, your question specifically deals with the reasons for the failure of
Healthcare.gov in contrast to the technological savvy of President Obama's successful 2012 reelection campaign. My first response is the obvious one: The re-election campaign was far better
funded, with far fewer obstacles and constraints, than HealthCare.gov, which was charged with
the herculean task of linking multiple federal agency databases that were completely siloed from
one another, and orchestrating them all to smoothly populate the HealthCare.gov insurance signup page. No computer interface to date, public or private, had been asked to do a similarly
complicated task, with so many moving parts that could cause problems at any number of points
along the way.
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I turn to history for my rebuttal: in 1942, Paul V. McNutt, chairman of the War Manpower
Commission during World War II, said this about the federal government's performance during
the Great Depression and World War II: "Your Government has turned out some of the biggest
and best-run jobs in history during this last 10 years. Unlike private business, Government
business lives in a 'goldfish bow!.' ... Government business is the object of vast public attention
before it ever begins to operate at all. ... The cause of victory will not be served by hasty, halfcocked or misinformed action. The War Manpower Commission has been set up to minimize
dislocation--not to create it. " I submit to you, Representative Collins, that HealthCare.gov has,
136
like the War Manpower Commission, been in a fish bowl of scrutiny since before it ever got off
the ground, and that its very valuable cause, to extend health coverage to a larger portion of
Americans, will not be served by the kind of hasty, half-cocked or misinformed action that the
Republican majority in Congress has thrown against HealthCare.gov during its very short
lifespan.
You noted, quite correctly, that President Obama was re-elected in 201 2-by a four-point
margin, more than two years after he signed the Affordable Care Act into law on March 23,
2010. His reelection signified the American public's overall satisfaction with the principles
enacted in ACA-principles that House Republicans and Governor Romney himself had
significant influence in shaping.
Even in the short amount of time that has passed since I received your question on January 7,
Hea1thCare.gov has made major strides and has, as I and others predicted during the December 4,
2013 hearing, resolved many of the problems that have plagued it since October.
Finally, Representative Collins, I am from northwest Florida, which is not so very far,
geographically or culturally, from your district in Northeast Georgia. Much of my work as a
historian has focused on the reasons why the South was the focus of early national health policy
during the 1930s, 1940s, and 1950s. During World War II, fully half of Southern recruits were
rejected for the draft, versus one third of non-Southerners, which points to the severe health
deficiencies then existing throughout the country, but especially in the rural, impoverished
South. Federal programs such as the public health titles of the 1935 Social Security Act, the
Bolton Nurse Training Act, the Wartime Emergency and Maternity Care program (which
subsidized hospitalized births for 1 in 6 American babies born in 1944), and the 1946 HillBurton Hospital Survey and Construction Act all channeled federal resources to uplift Southern
health, and they were incredibly successful at doing so. Between 1930 and 1950, malaria was
eradicated from the South, maternal and infant mortality dropped dramatically, federal funding
for education and training programs trained thousands of doctors, dentists, nurses, and public
health workers, and the rate Of typhoid, a deadly waterborne disease, was cut by 90 percent,
largely due to federally funded water and sewer construction projects. And what's more, these
programs were largely conceived and passed into law by forward-thinking Southern members of
Congress such as Sen. Claude Pepper of Florida, Sen. Lister Hill of Alabama, and Sen. Allen
Ellender of Louisil\I1a, with the help of private sector reformers such as the famous surgeon and
Georgian Louis T. Wright, who chaired the NAACP and led its fight for equity in federal health
programs.
I urge you, Rep. Collins, to consider the example of your family member who was a physician
during those days, about which you spoke during the hearing. You said that he and other country
doctors took care of everyone without the federal government needing to interfere, but I submit
to you that the South had far more federal help in providing health care and public health
services than any other region. In fact, your home state of Georgia established 181 public
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maternity clinics under the Social Security Act, more than any other state, and these clinics saved
the lives of thousands of mothers and babies who would otherwise have had no prenatal or
postnatal care whatsoever.
You see, my grandfather was a doctor too, and my great grandfather, and my great-great
grandfather-all were Georgia doctors who worked hard and cared deeply about their patients.
And sadly, they often had to watch them die-as my grandfather often told me, in the days
before penicillin, infectious diseases like measles, diphtheria, and polio killed or crippled
children on a regular basis. I'm deeply thankful that, thanks to the private-public partnerships
that resulted in developing and testing penicillin, polio vaccine, and many other medical
miracles, I and my children are protected against those scourges. And I'm also thankful that now,
the Centers for Disease Control and Prevention, based in your home state of Georgia because its
predecessor, the wartime Malaria Control in War Areas program, was also based in Atlanta, is
tracking disease outbreaks and protecting our whole nation from epidemics.
In conclusion, HealthCare.gov is not a "subpar product," as your question states, and therefore it
is most certainly not inherent in the nature of government, nor is it reflective of President
Obama's administration, for the federal government to produce an inferior product. Based on my
knowledge of history, and my own personal experience as a Southerner and an American, I
believe that the passage of time will demonstrate the value of the Affordable Care Act to the
American people, including those of Northeast Georgia.
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My response:
I believe that the President is not as engaged with the private commercial sector as much as he
should be. He is fully engaged with private sector campaign services, where he successfully used
a very sophisticated polling and campaigning apparatus to help his election and re-election.
However, he does not seem to trust the private sector to produce innovations and technological
advance that could benefit millions of Americans.
Clearly, the private sector could have been used much more effectively to develop and monitor a
successful Healthcare.gov website. Indeed, it was my understanding that the CEO of
Salesforce.com reportedly offered to build the website for no charge when it was clear that the
administration was encountering problems. This firm was experienced and capable of getting the
job done, but they were told that "regulations" prevented them from being used. Instead, it was
my understanding that the firm that was used, CGI, had problems in the past and had not set up
an effective monitoring process. It is difficult for me to believe that the administration could not
have used a well-regarded firm in the Cambridge, Massachusetts area, relying on MIT graduates,
or in Silicon Valley, relying on Stanford graduates, to build an effective website.
I do not think that the President intended to produce a subpar product. As noted, I just do not
think he is as thoughtful about the private sector and its capabilities as he should be. I also do not
think this problem is reflective of only the current administration. I believe that there is an antimarket sentiment generally in' the United States. I am often amazed about how much unregulated
activity there is in this country given the bias against markets.
Part .of the problem is that there is not systematic knowledge among policymakers about
government and market performance. I tried to point that out with reference to my book,
GOVERNMENT FAILURE VERSUS MARKET FAILURE, which Chairman Issa noted at the
beginning of the session. The book provides empirical evidence that government efforts to
correct alleged market failures have done more harm than good. This does not imply that markets
are perfect, but I do believe that they are more capable than government of learning from and
correcting mistakes. Unfortunately, I doubt that this administration and succeeding
administrations will learn from the website debacle. My hope is that .we allow the private sector
to solve as many social problems as possible without counterproductive government interference.
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Sincerely, Clifford Winston
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Questions for Dr. Winston
Searle Freedom Trust Senior Fellow
The Brookings Institution
Hearing on:
"The Roll Out of HealthCare. gov; The Limitations of Big Government"
1. The debacle that has been the rollout of Healthcare.gov has illustrated a point that has
at his 2012 campaign for example, universally lauded as the moat technologically
projects, we get Heathcare.gov. One website crashes CQnstantly and is unable to relay
accurate infonnation; the other has an enormous. capacity and is fully integrated for
federal government is footing the bill? Is this inherent in the nsture of government, or is it
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House Hearing, 113TH Congress - The Roll Out of Healthcare - Gov: The Limitations of Big Government

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House Hearing, 113TH Congress - The Roll Out of Healthcare - Gov: The Limitations of Big Government

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THE ROLL OUT OF HEALTHCARE.

Serial No. 11383

For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

LAWRENCE J. BRADY, Staff Director

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Hearing held on December 4, 2013 ........................................................................

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THE ROLL OUT OF HEALTHCARE.GOV: THE

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Ms. DE RUGY. Chairman Issa, Member Cummings, members of

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WHY GOVERNMENT INSTITUTIONS FAIL TO DELIVER ON THEIR

PUBLIC CHOICE ECONOMICS: POLITICS WITHOUT ROMANCE

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THE UNHEALTHY MARRIAGE BETWEEN GOVERNMENT AND INTEREST GROUPS

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MERCATU5 CENTER AT GEORGE MASON UNIVERSITY

GOVERNMENT INSTITUTIONS ARE INHERENTLY PRONE TO BAD DECISION-MAKING, OFTEN

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MERCATUS CENTER AT GEORGE MASON UNIVERSITY

CASE STUDY: THE DEPARTMENT OF ENERGY'S 1705 LOAN PROGRAMS

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MERCATUS CENTER AT GEORGE MASON UNIVERSITY

ABOUT THE AUTHOR

ABOUT THE MERCATUS CENTER

solutions to society's most pressing problems.

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MERCATUS CENTER AT GEORGE MASON UNIVERSITY

Mr. WINSTON. Thank you very much. I am very happy to be here.

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